Circa1865

Add to the sectional tariff issues below the irony of Northern abolitionist agitators, many of whom were the sons and grandsons of those who had grown wealthy through New England’s slave trade which populated the South with laborers, who fomented race war in the South. It was New England slave ships which brought slaves from Africa; New England mills were busy consuming slave-produced cotton; and Manhattan banks were eager to lend Southern plantation owners money at low interest to buy more land to produce more cotton.

Bernhard Thuersam, www.Circa1865.com

The Disappearance of Wealth from the South

“The South maintained that the Tariff Acts of 1828 and 1833 were unconstitutional, since Congress had the power to levy taxes only for revenue and the taxes have to be uniform. The act then passed was sectional, since by it, the South, while she had only one-third of the votes, paid two-thirds of the custom duties . . .

[And] as our government was a compact, the government could not be superior to the States – so Congress was overstepping its powers, and [the South] contended that a tax on one part of the country could not be laid to protect the industries of another part. (United States Constitution – Section VIII., Clause 1)

What had the North to say to this?

When Thomas Hart Benton, of Missouri, in referring to the Tariff Acts, said:

“Under Federal legislation the exports of the South have been the basis of the Federal revenues – everything goes out and nothing is returned to them in the shape of Federal expenditures. The expenditures flow North. This is the reason why wealth disappears from the South and rises up in the North. No tariff has yet included Georgia, Virginia or the two Carolinas [in its largesse], except to increase the burdens imposed upon them.

The political economists of the North, Carey, Elliott, Kettel and others who have studied the source of National wealth in America, said: “Mr. Benton is right in the explanation given of the sudden disappearance of wealth from the South.”

Then the editor of “Southern Wealth and Northern Profits,” a Northern man, said:

“It is a gross injustice, if not hypocrisy, to be always growing rich on the profits of slave labor; and at the same time to be eternally taunting and insulting the South on account of slavery. Though you bitterly denounce slavery as the “sum of all villainies,” it is nevertheless the principal factor (by high tariff) of your Northern wealth, and you know it.”

(Truths of History, Mildred Lewis Rutherford, Southern Lion Books, 1998 (originally published 1920), excerpts pp. 84-85)

The Confederate Constitution eliminated protective tariffs for industry altogether. The Boston Transcript observed on March 18, 1861 that “the principal seceding States are now for commercial independence” from the North, and it warned its readers that if free trade were permitted to exist in the Southern States, then the Southern ports would take away most of the trade from Boston, New York and other Northern ports. There is no doubt that a free-trade South could not be tolerated by protectionist Northern merchants who supported Lincoln’s party.

Bernhard Thuersam, www.Circa1865.com

Tariffs and the South

“In a November 1860 speech before the Georgia legislature, US Senator Robert Toombs explained why Southerners were complaining of unconstitutional fiscal plunder by the federal government and why they believed it was about to get much, much worse with the election of Lincoln.

In recent years, Toombs explained, the Northern States had succeeded in having Congress give them a legal monopoly in the shipbuilding business, prohibiting the sale of foreign-made ships in the United State. This increased the cost of shipping to the trade-dependent South.

Other laws prohibited foreign shippers from offering lower prices than American shippers. Special taxes were assessed on the citizens of Southern coastal areas to pay for lighthouses and harbors that primarily benefited the Northern shipping industry. “Even the fishermen of Massachusetts and New England,” Toombs complained, “demand and receive from the public treasury about half a million dollars per annum as a pure bounty on their business of catching codfish.”

Northern manufacturers also enjoyed trade protection with tariffs and import quotas “for every trade, craft, and calling which they pursue,” with tariffs ranging “from fifteen to two hundred percent,” most of which end up being paid by Southerners. No wonder they cry out for glorious Union,” Toombs said sarcastically, for “by it they got their wealth.”

On the eve of the South’s secession, Toombs then railed against the proposed Morrill Tariff, which proposed raising the tariff rate by as much as 250 percent on some items. With this tariff bill, Northerners were “united in a joint raid against the South.”

Because of the federal government, largely under the influence of Northern politicians, had overridden its bounds of constitutionality with regard to public spending, the Treasury had become a “perpetual fertilizing stream to [Northern businesses and laborers] and a suction-pump to drain away our substance and parch up our lands.”

(The Real Lincoln, A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War; Thomas J. DiLorenzo, Forum, 2002, excerpts pp. 126-127)

The early United States was an agricultural country with import tariffs at a low 5%. As Northern industrialism grew by 1808, the next 24 years saw the protective tariff as the most contentious debate in Congress. Anti-tariff leaders argued that protective duties were ultimately paid by consumers in the form of higher prices for manufactured products, and thus more oppressive for Southern consumers, who received no compensating benefits, than for northern consumers, who enjoyed higher incomes.

Bernhard Thuersam, www.Circa1865.com

No Treason in Resisting Oppression

“Jackson and Calhoun differed almost as much on governmental policies as on constitutional principles. In 1828 the Vice-President was vehemently against the protective tariff and mildly in favor of the national bank. The President, as did [Martin] Van Buren, mildly approved of the tariff and detested the bank.

Calhoun considered the tariff a crucial issue because he regarded the conflict between North and South as the overriding national problem. But Jackson was more disturbed by the monster bank because he was distressed about the capitalists and stock jobbers who supposedly made profits by spewing forth paper money instead of producing a material product. The President was determined to stop rich, moneyed interests from using government funds to secure paper profits at the expense of the people.

The early ideological differences between Calhoun and Jackson became particularly evident on the question of distributing the federal surplus to the States after the national debt was paid. Jackson vigorously favored distribution; Calhoun adamantly opposed it.

For Jackson, retiring the debt, and thereby stopping the moneyed interests from employing the peoples’ funds, was an important end in itself. For Calhoun, on the other hand, retiring the debt was only a means of lowering the tariff. Once the debt was repaid, expanding federal surpluses would force the government to cut taxes. But if the surplus was distributed, the federal government would retain an excuse for high tariffs. Distribution would destroy the reason for repayment.

To Jackson, equal division [of the surplus] meant division according to population. But Calhoun considered distribution according to population completely unequal. The majority North would continue to drain away the wealth of the minority South. Jackson’s distribution would institutionalize the worst evils of Adams’ nationalism.

The increasing tension between Calhoun and Jackson became blatantly public at the April 13, 1830, Jefferson Day dinner. Glaring at Calhoun, signaling the boisterous crowd to rise, the President toasted “Our Federal Union – It must be preserved!” [Calhoun’s] reply, when it came, was an anticlimax: “The Union – Next to our liberties most dear.”

Moments later, George McDuffie was more blunt: “The memory of Patrick Henry: the first American statesman who had the soul to feel, and the courage to declare, in the face of armed tyranny, that there is no treason in resisting oppression.”

(Prelude to War, the Nullification Controversy in South Carolina, 1816-1836; William W. Freehling, Harper & Row, 1965, excerpts pp. 190-192)

Below, author Frank Chodorov rightly points to the centralization of economic power in Washington as the origin of dissolution of the Union. The Lincoln revolution of 1861 left the Founders’ republic a shambles, and imperial authority became seated in Washington supported by the financial apparatus of the Northeast. The marriage of government and corporate interests was not possible with conservative Southerners in Congress; the Gilded Age and imperial expansion followed the end of the republic, and the Sixteenth Amendment was sure to follow. This was what antebellum Southern statesmen warned against and could not prevent.

Bernhard Thuersam, www.Circa1865.com

The Revolution of 1913

“The federal government rubbed along on what it could get out of customs duties and excise taxes until the enactment of the Sixteenth Amendment in 1913. It requires no great imagination to draw up a bill of particulars [today] against the present American state comparable to the indictment of the British crown in the Declaration, and one could well argue that there is more cause for revolt today than there was in 1776. The will, however, is absent.

Among the casualties of the revolution of 1913 is the doctrine of federalism. From 1789 until the Civil War, the tradition of coequal authority between local and federal governments held firm, and even after that war (which settled only the question of secession), the States maintained their autonomy by virtue of their economic independence. The country was a Union, not a nation; it was only when the federal government obtained power over the citizens’ property that our constitutional structure was mutated.

Before income taxation, the best the government could offer the local politician in the way of bribery were land grants, franchises, a few posts in the limited bureaucracy and “rivers and harbors” bills. The price was not high enough to buy up the integrity of the people’s representatives completely; a truly patriotic congressman was not a rarity.

The ink was hardly dry on the Sixteenth Amendment before the heretofore picayune grant-in-aid program began to blossom; in 1914 came the Smith-Lever Act establishing the Agricultural Extension Service . . . followed in rapid order with others; it would take a book of proportions merely to list the legislation passed since 1913 to favor political ambitions.

It is a truism to say that the congressman is only a liaison officer between his constituents and the Treasury Department. In fairness, one should not point to this consequence of the Sixteenth Amendment as evidence of the moral decline of the politician; it is rather proof of a dwindling social integrity.

That the politician unashamedly boasts of the prosperity his “influence” has brought to his community, by way of airfields, bridges, dams, and smokestacks, only reflects the general attitude. And the general attitude, visibly expressed in the endless safari to Washington in behalf of “worthy” causes, is in turn the result of the transfer of economic power from society to the state.

But the quid pro quo [economic power transfer] is the abdication of local social power in favor of the greater monopolization of coercion by the central establishment. The price of favors is sovereignty. Just as the citizen was turned into a subject by the confiscation of his property, so does the local politician transfer his allegiance from his community to the source of munificence.

A [John C.] Calhoun, struggling to keep inviolate the customs of his State, has no place in our mores; the people would not elect him. Nor could a governor of Rhode Island hold office today if he presumed to defy, as did several of his predecessors, the authority of Washington.

State lines have are practically obliterated, the States reduced to parish status, their politicians nationalized. The independent home government emerging from the revolution of 1789 has been destroyed by the revolution of 1913. The Union is dissolved.”

(Fugitive Essays, Selected Writings of Fran Chodorov, Charles Hamilton, editor, Liberty Press, 1980, excerpts pp. 258-266)

Though the smallest State of the United States, Rhode Island’s contributions toward populating America with enslaved Africans was massive, and they were joined in this endeavor by New York and Massachusetts. It is said that Liverpool shipbuilders complained to Parliament of trained British shipwrights being lured across the Atlantic with higher pay, and which allowed Rhode Island to surpass Liverpool as the center of the transatlantic slave trade by 1750.

Bernhard Thuersam, www.Circa1865.com

Rhode Island’s Profitable Past

“Soon after its settlement, Bristol [Rhode Island] people began to engage in commerce with the West Indies and the Spanish Main. The first recorded shipment (November 6, 1686) consisting of a number of horses, was consigned to the “Bristol Merchant,” bound for Surinam, British Guiana. [The] Slave trade was introduced in Rhode Island about 1700, and Bristol was not slow in joining Newport and Providence in this highly profitable industry.

It has been estimated that over a fifth of the total number of slaves crossed the Atlantic to British America in Rhode Island vessels, and that of this fifth Bristol slavers carried the largest share. Horses, sheep, pickled fish, onions, carrots, etc. made up the cargo on the outward voyage, and coffee, molasses, sugar, rum and tropical fruits were imported. The outbreak of the Revolution struck hard at the prosperity of this flourishing commercial town.

After the war the people of Bristol rebuilt the town and commerce was soon revived, especially the slave trade with Africa and molasses and rum trade with Cuba.”

(Rhode Island, A Guide to the Smallest State, Louis Cappelli, Houghton Mifflin, 1937, excerpts pp. 184-185)

The shipping interests of New England, dealing in slaves and goods, sparked the initial war with England, and later New England manufacturer’s hunger for protectionist tariffs drove the South to create a more perfect Union among themselves. After Southern Representatives and Senators left Congress in 1861, the Northern Congress immediately voted high tariffs, land grants, and subsidies to its numerous wealthy patrons who spent lavishly in Washington. The Collis Huntington mentioned below is cast by historians as the consummate villain, and came to symbolize the greed and corruption of the Gilded Age. Much of his money came from defrauding the American taxpayer in Western railroad schemes. His stepson, Archer Milton Huntington, used his inheritance to purchase Gov. Joseph Allston’s plantation and several others just south of Murrell’s Inlet, SC in 1930 — and renamed Brookgreen Gardens.

Bernhard Thuersam, www.Circa1865.com

Corruption and Protective Tariffs in Postwar Washington

“The descriptive powers of Washington correspondents had so captured the imagination of the American that some Republican journalists after the Panic of 1873 and the scandals later revealed considered it advisable to play down the brilliance of social life in the capital.

The lobbyists as a class, male and female, flourished [in Washington] as never before. The railroad magnates, hungry for public land grants and subsidies, bid against each other for the favors of politicians. Collis P. Huntington, promoter of the Central Pacific, came to Washington with $200,000 in a trunk for “legal expenses” to obtain a Federal charter. General [Richard] Franchot, his agent, spent $1,000,000 for “general legal expenses” over and above his salary of $30,000.

[Lincoln’s financier] Jay Cooke undertook almost singlehanded to underwrite the expenses of the Republican presidential campaign. The rewards, however, were commensurate.

In 1871 Thomas A. Scott received a 13-million acre grant for the Texas Pacific Railroad, and Jay Cooke obtained a grant of 47 million acres for the Northern Pacific in 1868. By 1870, four Western [railroads] had received as much public land as the combined States of Ohio, Illinois, Indiana, Wisconsin and Michigan.

Even Speaker [of the House James G.] Blaine was heavily involved in the Fort Smith and Little Rock Railroad, shares of which he tried to sell to his fellow members of Congress.

The venality of Congressmen had become a by-word. “A Congressional appropriation costs money,” said Colonel Sellers in The Gilded Age. “A majority of the House Committee . . . was $40,000. A majority of the Senate Committee . . . say $40,000, a little extra for one or two Committee Chairman . . . say $10,000 . . . Then seven male lobbyists at $3,000 each, one femal lobbyist at $10,000 – a high moral Congressman or Senator here or there – the high moral ones cost more because they give a certain tone to a measure – say ten of these at $3,000 each. Then a lot of small fry country members who wouldn’t vote for anything whatever without pay. Say twenty at $500 apiece.”

Neither were the manufacturers of New England neglecting their special interests. John L. Hayes was lobbying among the members of Congress seeking for the continuation of the tariff on [imported] textiles to protect the mills of the North. The wool interests in the Middle West were endeavoring to increase the tariff on imported cloth, and the steel and iron magnates of Pennsylvania, headed by Representative “Pig iron” Kelley kept an anxious eye on the importation of steel rails from England; several of the charters granted to railroads specified that the rails laid down must be of American manufacture.

The tariff issue was, indeed, beginning to overshadow the “Southern question” as the fundamental concern of the Republican party.”

(The Uncivil War, Washington During Reconstruction, 1865-1878; James H. Whyte, Twayne Publishers, 1958, excerpts, pp. 183;194-195)

The postwar Republican party in 1903 was not unfamiliar with exporting revolution for commercial and party purposes as it had supported revolts in Hawaii in 1887, which ended in the overthrow of Hawaiian sovereignty in 1898. The Columbian government would not move fast enough for Roosevelt the First, and the machinery of regime change was put into motion.

Bernhard Thuersam, www.Circa1865.com

Republicans and Panamanian Secession

“On November 3, 1903, a group of revolutionaries led by Manuel Amador staged a bloodless uprising in Panama City and succeeded in severing the province of Panama from the Republic of Columbia of which it had been an integral part. Under normal circumstances such political upheavals in Latin America would have caused little comment in the United States, but the Panama revolution was in no sense a normal affair.

An agreement had already been made with the New Panama Canal Company to purchase the rights of a defunct French corporation that earlier had attempted to construct a canal through the isthmian jungles; but all efforts to obtain a new grant of authority from the Columbian government proved to be unsuccessful, so unsuccessful, in fact, that there seemed to be little immediate hope that the United States would able to accomplish its self-appointed task of joining the Atlantic and Pacific Oceans.

Guided by motives of self-interest, the independent Republic of Panama would offer no impediment to the work of American engineers . . . In sum, the Panama uprising was, to all outward appearances, a most satisfactory revolution.

Viewed in the light of other developments, however, the whole Panama affair carried suspicious markings of American imperialism.

In the first place, the Roosevelt administration, in its anxiety to obtain Columbian approval of a suitable canal treaty, had exerted the most obvious sort of pressure on that government. During the spring and summer of 1903 Roosevelt had personally referred to Columbian officials as “inefficient bandits,” “contemptible little creatures,” and “homicidal corruptionists.”

He even threatened that country with action that “every friend of Columbia will regret” in the event some favorable solution was not soon reached.

In the second place, key figures in the Roosevelt administration had been exceedingly intimate with some of the leading figures in the Panamanian revolution. William Nelson Cromwell, an attorney for the New Panama Canal Company, for example, had contributed $60,000 to the Republican national committee in 1900 and through it gained an entry to the highest circles of that party.

Finally, the course of the United States government prior to and during the . . . revolution was open to suspicion of the gravest sort. An official of the State Department had sent an unfortunate inquiry to the American consul at Panama City asking about the uprising several hours before it occurred. Did this mean that the United States government had known in advance about the outbreak and had assisted the revolutionary party in planning it?

By like token, how did it happen that the USS Nashville arrived in Colon on the evening of November 2 and, on the day following the revolution, landed United States Marines there to prevent Columbian troops from seizing the Panama Railroad?

Above all, why did President Roosevelt recognize the new republic on November 6, receive [the new] minister from Panama on November 13, and authorize the signing of a canal treaty on November 17? Had Roosevelt personally engineered the revolt?

Certainly there was plenty of circumstantial evidence pointing towards the complicity of the American government; and although the Panama incident was still shrouded in secrecy, if the Democrats could uncover a few of the real facts underlying it both President Roosevelt and the Republican party would, in all likelihood, be faced with a scandal so infamous that political disaster must inevitably follow.”

(Arthur Pue Gorman, John R. Lambert, Louisiana State University Press, 1953, excerpts, pp. 297-300)

In this late 1940 address to the Southern Historical Association, historian Frank L. Owsley (1890-1956) spoke of the sectional cause of the Civil War and the North’s reluctance to allow the South to seek political independence.  Prof. Owsley was born in Alabama, taught at Vanderbilt University and was a member of the Southern Agrarians.

Bernhard Thuersam, www.Circa1865.com

The Civil War’s Basic Cause: Sectionalism

“Before attempting to say what were the causes of the American Civil War, first let me say what were not the causes of the war.

Perhaps the most beautiful, the most poetic, the most eloquent statement of what the Civil War was not fought for is the Gettysburg Address. That address will live as long as Americans retain their love for free government and personal liberty; and yet in reassessing the causes of the Civil War, the address whose essence is was that the war was being fought so “that government of the people, by the people, and for the people shall not perish from the earth” is irrelevant.

Indeed, this masterpiece of eloquence has little if any value as a statement of the basic principles underlying the war.

The Civil War was not a struggle on the part of the South to destroy free government and personal liberty, nor on the part of the North to preserve them. Looked at from the present perspective of the worldwide attempt of the totalitarians to erase free governments and nations living under such governments from the face of the earth, the timeworn stereotype that the South was attempting the destruction of free government and the North was fighting to preserve it seems unrealistic and downright silly.

If the destruction of democratic government by the South and its preservation by the North were not the causes of the Civil War, what then were the causes? The surface answer to this question is that in 1861, the Southern people desired and attempted to establish their independence and thereby to disrupt the old Union; and that the North took up arms to prevent the South from establishing this independence and to preserve the Union.

This [Southern] state of mind may be summed up thus: by the Spring of 1861, the Southern people felt it both abhorrent and dangerous to continue to live under the same government with the people of the North. So profound was this feeling among the bulk of the Southern population that they were prepared to fight a long and devastating war to accomplish a separation.

On the other hand, the North was willing to fight a war to retain their reluctant fellow citizens under the same government with themselves.

The cause of that state of mind which we may well call war psychosis lay in the sectional character of the United States. In other words, the Civil War had one basic cause: sectionalism.

Our national state was built, not upon the foundations of a homogenous land and people, but upon geographic sections inhabited severally by provincial, self-conscious, self-righteous, aggressive and ambitious populations of varying origins and diverse social and economic systems; and the passage of time and the cumulative effects of history have accentuated these sectional patterns.”

(The Fundamental Cause of the Civil War, Frank L. Owsley, excerpt, Address to Southern Historical Association, November 8, 1940)

History records that the first colony to legally establish slavery was Massachusetts, the Puritans of New England enslaved the Pequot Indians [including children] who resisted their invasions; by 1750 Rhode Island had surpassed Liverpool as the center of the transatlantic slave trade; Yankee notions and rum were traded in Africa for those already enslaved; Massachusetts inventor Eli Whitney’s gin transformed cotton production in 1793; Manhattan banks supplied easy credit after the Louisiana Purchase opened the western lands to slave-produced cotton; and cotton-hungry New England mills were fed from that new land. It is then easy to see the source of slavery’s perpetuation and it clearly points to those who could have easily ended that relic of the British colonial system.

Bernhard Thuersam, www.Circa1865.com

Reaping the Economic Benefits of Slavery

“The superabundance of land to which the English colonists, from Adam Smith downwards, attribute the prosperity of new colonies, has never led to great prosperity without some kind of slavery. The States of New England, in which Negro slavery [was permitted], form no exception to the general rule.

[Though] the Puritans and followers of [William] Penn, who founded to colonies of New England, flourished with superabundance of land and without [a great number of] Negro slaves, they did not flourish without slavery . . . [though] they were led to carry on an extensive traffic in white men and children, who, kidnapped in Europe, were virtually sold to these fastidious colonists, and treated by them as slaves.

Even so lately as the last twenty years, and especially during the last war between England and America . . . vast numbers of poor Germans were decoyed to those States which forbid slavery, and there sold for long terms of years to the highest bidder at public auction. Though white and free in name, they were really not free to become independent landowners, and therefore it was possible to employ their labor constantly and in combination.

A black man never was, nor is he now, treated as a man by the white men of New England. There, where the most complete equality subsists among white men, and every white man is taught to respect himself as well as other white men, black men are treated as it they were horses or dogs . . .

In another way, the States which [abolished] slavery have gained by it immensely without any corresponding evil. The great fishing establishments of the [New England] colonies were set up for the purpose of supplying the slaves of the West Indies, Maryland, Virginia, Georgia and the Carolinas, commodities which have never been raised on any large scale in America except by the combined labor of slaves.

A great part of the commerce . . . of Boston, New York, Philadelphia, and Baltimore, has always consisted of a carrying trade for the Southern States . . .

At the present time, which is the great market for the surplus of farmers in the non-slaveholding States on the western rivers? New Orleans. And how could that market exist without slavery? Capitalists again, natives of the States which forbid slavery, reside during part of every year in the slave States, and reap large profits by dealing in rice, sugar and cotton, exchangeable commodities, which, it must be repeated, have never been raised to any extent in America except by the labor of slaves.

The States, therefore, which [abolished] slavery, having reaped the economic benefits of slavery, without incurring the chief of its moral evils, seem to be more indebted to it than the slave States.

If those who [abolished] slavery within their own legal jurisdiction should also resolve to have no intercourse or concern with slave-owners, to do nothing for them, and to exchange nothing with them, we should see an economical revolution in America . . .

It is evident that the most Southern States of the Union cannot abolish slavery without incurring great dangers, which the North had no reason to apprehend when it emancipated its black population . . . [and were] gradually introduced into the society . . .

The Northern States had nothing to fear [as the] blacks were few in number . . . But if the faint dawn of freedom were to show two millions of men their true position, the oppressors had reason to tremble.

And as soon as it is admitted that the whites and the emancipated blacks are placed upon the same territory in the situation of two foreign communities, it will be readily understood that there are but two chances for the future: the Negroes and the whites must either wholly part, or wholly mingle.”

(Selections from the Economic History of the United States, 1765-1860, Guy Stevens Callender, (original 1909) Reprints of Economic Classics, 1965, excerpts, pp. 793-799)

As Lincoln was unable to finance his war with the traditional tax and customs revenue sources, he turned to paper fiat money to be printed as needed, though the Constitution permits only gold and silver as legal tender. The predictable speculation in the value of greenbacks versus gold prices caused murky markets to emerge. In New York’s “Gold Room,” decisions were guided not so much by patriotic motives as the desire for profit. It was said that “Sectional feeling often entered largely into bull and bear contests in the Gold Room, and Union men and rebel sympathizers fought their battles sometimes, as much to gratify this as to make money.”

Bernhard Thuersam, www.Circa1865.com

Financing the War with Inflation

“To help finance the Civil War, the federal government began issuing “demand notes” in July 1861. These government obligations were not a legal tender currency and were freely convertible into gold upon presentation to a federal depository. During the course of 1861, the Union’s financial condition deteriorated, and in December the Treasury issues a very bleak report on the budgetary situation.

In the face of such news, bankers concluded that investors would lose confidence in the demand notes and the banks would soon experience a massive outflow of gold. On December 30, the banks suspended specie payments of gold [for greenbacks]. The government followed suit almost immediately.

Soon thereafter, in February 1862, Congress passed the first of the Legal Tender Acts. These acts authorized the government to issue “greenbacks” – a currency that was to be legal tender for both public and private debts. Of course, since demand notes were no longer convertible into gold, neither were greenbacks . . . [though] all available evidence indicates that the public believed that at some future date convertibility would be reinstated and all greenbacks would be redeemed in gold.

[Because Lincoln] was unable to finance the war with the available tax revenues . . . Greenbacks were a way of using inflation to pay for the war. Speculators knew that the degree to which the Union would have to rely on future greenback issues depended on just how much the war would ultimately cost. A long, expensive war would require more greenback issues and make it less likely that greenbacks would ever be exchanged for gold dollars on a one-for-one basis.

Not surprisingly, a formal market for buyers and sellers to trade gold came into existence within two weeks of the suspension of convertibility. The first organized dealings took place at the New York Stock Exchange on January 13, 1862. At about the same time a second market formed . . . in New York City . . . known as the Gold Room.

An important question for our purposes is how the gold market used the [political and war] information coming to it. Did the financial market react quickly to news that was available, or did it take several days to digest it? A closely related question is whether news of battles . . . reached all participants at the same time.

In a report on the burning of Chambersburg, Pennsylvania, on July 31, 1864, the New York Herald explicitly noted that the government frequently withheld information from the public to minimize alarm and protect intelligence and sources.

The daily registry of the Gold Room was a quicker messenger of successes and defeats than the tardier telegrams of the Associated Press. A private secretary of a high official, with no capital at all to save his position, which gave him authentic information of every shaping of the chess game of war a full twenty hours in advance of the public, simply flashed to the words “sell, buy” across the wires, and trusted the honor of his broker for the rest.

If there was a sufficiently large number of “insiders” competing with each other, then the market would quickly transform war news into changes in the price of greenbacks, despite the fact that the news was not coming through published sources.

The observation of [New York Herald writer] Kinahan Cornwallis are consistent with this notion: “Almost every individual speculator in the Gold Room, whose transactions were large enough to make it of consequence, had a correspondent in the national capital, who sent him a telegraphic dispatch as occasion required . . .”

(Greenback Prices as Commentary on the Union Prospects, Guinnane, Rosen and Willard, Civil War History, The Journal of the Middle Period, Kent State University Press, December 1995, Volume XLI, No. 4, excerpts, pp. 315-318)