Browsing "Financing Lincoln’s War"

Hoke Smith and the Grand Army Pensions

The first Democrat president after the War, Grover Cleveland went to work immediately on the “Billion Dollar Congress” which notoriously had handed out extravagant war pensions to the Grand Army of the Republic’s (GAR) veterans. In Cleveland’s second term, 1893 to 1897, his Secretary of the Interior, Hoke Smith of Georgia revealed the depth of pension frauds amid the Republican party’s loyal electorate.

Bernhard Thuersam, www.circa1865.org

 

Hoke Smith and the Grand Army Pensions

“By 1893 there were almost a million pensioners, receiving over $156 billion annually, or almost a third of the entire expense of operating the government. That inveterate reformer Carl Schurz called the pension system “a biting satire on democratic government. Never has there been anything like it in point of extravagance and barefaced dishonesty.”

The pressure exerted by the GAR and the political dynamite in the pension question had continually precipitated more generous pension legislation. Furthermore, the lax administration of the pension laws allowed applicants with the weakest possible claims, as well as some who were guilty of “wholesale and gigantic frauds,” to be admitted to the rolls.

In May 1893, [Hoke] Smith . . . revoked the notorious “Order No. 164″ [of] 1890 . . . an interpretation [by Republican Commissioner of Pensions Raum] which proved highly advantageous to persons with minor disabilities not of service origin. During the second Cleveland administration, the spiraling cost of the Federal pensions was checked . . . [but] it was in Congress that fundamental pension policy was determined and the Congressmen were in a liberal mood as far as the [Civil War] veterans were concerned.”

(Hoke Smith and the Politics of the New South, Dewey Grantham, Jr., LSU Press, 1958)

Cash to Finance the Northern War Machine

The summer of 1864 saw the Union cause in disarray and the Northern public depressed over the appalling battle deaths and worker strikes. Secretary of the Treasury Salmon Chase was a political opponent of Lincoln and presidential aspirant, and soon replaced by Maine Senator William Pitt Fessenden, a radical antislavery Whig. Lincoln appointed him for his close links to prominent northeastern capitalists, and to “find sufficient funds to pay for a vicious and expensive war that showed no signs of ending.”

Bernhard Thuersam, www.circa1865.org

 

Cash to Finance the Northern War Machine

“It would be easy to condemn Fessenden for his employment of a private banker [Jay Cooke] sell vast amounts of public securities. The secretary himself was uneasy about the idea. The Union was in a desperate financial condition for most of his term in office. [Former Treasury Secretary Salmon Chase] told Jay Cooke in September 1864 that Fessenden’s reluctance to employ the agency system was probably due to his unwillingness to encounter public criticism. “I hardly blame him,” wrote Chase bitterly. “What did I get – what did anybody get prefer[r]ing country and duty to private interests & compliant favor?”

The secretary’s treatment of financial questions was essentially pragmatic – informed by a characteristically Whiggish view of the economy and society but conditioned primarily by the urgent need for cash to finance the Northern war machine . . .

Beginning in July 1861 Congress passed a series of laws heavily restricting trade with areas outside the loyal States and giving the secretary of the Treasury and his network of agents wide-ranging powers . . . The system proved controversial, particularly in border-State communities traditionally reliant on trade with the South, and fostered widespread corruption centered on the smuggling of cotton from the Confederacy.

Cotton prices were increasing dramatically because of the war and a multiplicity of Treasury employees, military officials, and private citizens were soon caught up in the illicit trade. In the summer of 1864 President Lincoln endorsed the view of a Boston businessman, Edward Atkinson, that the government should procure as much Confederate cotton as possible in order to prevent the South from exploiting sales of its valuable staple.

On July 2, the day before Fessenden entered the cabinet, Congress gave the secretary of the Treasury exclusive power over all trade in the Rebel States, the aim being to establish a government monopoly over the cotton trade and thereby increase the national revenue at the enemy’s expense.

On September 24 Fessenden issued new trade regulations . . . These permitted persons claiming to control cotton beyond Union lines to sell their product to an appointed Treasury agent at three-quarters of the current cotton price in New York. A complementary executive order broadened the possibilities for intersectional trade by allowing cotton sellers to purchase goods up to bone-third of the price received and take them back across the lines.

Fessenden had grave reservations about this morally dubious trade . . . [but] Lincoln signed around forty special orders before December 1 authorizing favored individuals to bring out Southern cotton. Vast fortunes awaited those with sufficient political clout to secure the necessary permits or Treasury appointments.”

(The Grave of All My Comforts, William Pitt Fessenden, Robert Cook, Civil War History, John T. Hubbell, editor, Kent State University Press, September 1995, pp. 216-219)

The Evils of Paper Money

For writing promissory notes and obligations of payment in true money of value, is the only proper use of paper for monetary transactions. The note is then worth the sum it is given for under the law. If the person writing the note is worth nothing, then the promise is worthless. The true value then is not the promissory note, but the man behind it. When persons in government begin printing money and establishing claims to its value, the entire system of value and worth is overturned and apparitions replace reality.

Bernhard Thuersam, www.circa1865.org

 

The Evils of Paper Money

“The currency provisions of the federal constitution were intended to “shut and bar the door” against the evils of a legal-tender paper money issued by State or national governments. For more than two generations it succeeded in accomplishing that end. Contemporaneous with the establishment of the new government, banks were introduced into the United States and spread everywhere with astonishing rapidity. As a result the American people continued as in former times to use for the most part a paper currency, consisting of the notes of these banks. They were not legal tender, as the old bills of credit had been, and could not be made so; and no one supposed that they could give rise to the evils of depreciated paper currency.

The framers of the Constitution of the United States were deeply impressed with the still fresh recollection of the baneful effects of a paper money currency on the property and moral feeling of the community. It was accordingly provided by our National Charter that no State should coin money, emit bills of credit, make anything but gold and silver coin a tender, in payment of debts, or pass any law impairing the obligation of contracts; and the power to coin money and to regulate the value thereof, and of foreign coin, was, by the same instrument, vested exclusively in Congress.

As this body has no authority to make anything whatever a tender in payment of private debts, it necessarily follows that nothing but gold and silver can be made a legal tender for that purpose, and that Congress cannot authorize the payment in any species of paper currency of any other debts but those due the United States, or such debts of the United States as may, by special contract, be made payable in such paper . . .

The provisions of the Constitution were universally considered as affording complete security against the danger of paper money. The introduction of the banking system met with a strenuous opposition on various grounds, but it was not apprehended that banknotes, convertible at will into specie, and which no person could be legally compelled to take in payment, would degenerate into pure paper money, no longer paid at sight in specie.

Still less it was expected; and it was the catastrophe of the year 1814 which first disclosed not only the insecurity of the American banking system, as then existing, but also that when a paper currency, driving away and superseding the use of gold and silver, has insinuated itself through every channel of circulation and become the only medium of exchange, every individual finds himself, in fact, compelled to receive such currency, even when depreciated more than twenty per cent, in the same manner as if it had been made a legal tender.”

( The Economic History of the United States, 1765-1860, Guy Stevens Callender, Sentry Press, 1965, pp. 564-566)

Revolutionary War Financing Precedes the Federal Reserve

With his war bankrupting the national treasury and consuming available gold reserves, Lincoln’s solution was to create a national banking system controlled from Washington, claiming military necessity as the reason for printing paper currency of questionable value and legality. Radical Ohio Senator John Sherman knew national banking “would centralize power in Washington” and he urged congressional colleagues to “nationalize as much as possible,” even the currency, so as to “make men love their country before their States.” All private interests, all local interests, all banking interests, the interests of individuals, everything, should be subordinate now to the interest of the Government.”

Bernhard Thuersam, www.circa1865.org

 

Revolutionary War Financing Precedes the Federal Reserve

“At the time of the Civil War the [United States did not have a nationalized] system of banking and banknote currency, and one of the important matters of [Northern] war finance was the creation of such a system.

“[Treasury Secretary Salmon P. Chase] . . . in his report of December, 1862 . . . outlined his plan for national banks and national bank currency. What Chase proposed was a system of national banking associations under Federal supervision, which would issue bank notes based upon United States bonds and guaranteed by the Federal government.

It became law on February 25, 1863; but this law had certain defects, so that Congress faced the whole problem afresh and reframed the statute. It is therefore to the law of June 3, 1864, that one must turn for the legislative basis of the national banking system as it emerged from the Civil War. Other provisions of the act were concerned with the maintenance of a required reserve against both banknotes and deposits; the depositing of such reserve in “reserve cities” (which permitted the concentration of bankers’ funds in New York City); . . . and the use of banks as depositaries and financial agents for the government.

As a method of stimulating, or rather forcing, the sale of United States bonds, the national bank act became an essential feature of Civil War finance. After the war (1866) a tax was placed on State banknotes in order to tax them out of existence, so that national banks possessed a monopoly of banknote currency.

To think of the national banking system as a purely fiscal measure innocent of politics and free from exploitation would indeed be a naïve assumption. Investigation shows that it soon “developed into something that was neither national nor a banking system.

Instead it was a loose organization of currency factories designed to . . . [serve] commercial communities and confined…almost entirely to the New England and Middle Atlantic States.” One of the chief injustices of the system as actually administered was the favoritism shown after the war to the eastern States which received the lion’s share of the $300,000,000 of banknote circulation assigned by law as the maximum for the whole country.

As explained by George LaVerne Anderson, each State in the New England and Middle Atlantic regions obtained an amount of banknotes in excess of its quota, while not a State in the South received an amount equal to its quota.

“Massachusetts (writes Anderson) received the circulation which would have been necessary to raise Virginia, West Virginia, North and South Carolina, Louisiana, Florida and Arkansas to their legal quotas . . . The little State of Connecticut had more national bank circulation than Michigan, Wisconsin, Iowa, Minnesota, Kansas, Missouri, Kentucky and Tennessee . . . Massachusetts had more than the rest of the Union exclusive of New England and Middle Atlantic States.

[An] interesting comparison [he continues] can be made between comparatively small New England towns and the Southern States. Thus Woonsocket, Rhode Island, had more national bank circulation than North and South Carolina, Mississippi and Arkansas; Waterville, Maine, had nearly as much as Alabama; New Haven, Connecticut, had more than any single Southern State.

If it be said in answer to these facts that distributing according to population is absurd . . . it should be kept in mind that not a single Southern State had obtained, by October 1869, its legal share of the $150,000,000 which was to have been apportioned according to existing banking capital, wealth and resources.”

With some modification [this] national banking system continued for half a century. Though it had some merit, it created an inelastic currency, tended toward the concentration of bank resources in New York, opened the way for serious abuse in the speculative exploitation of bank funds, and contributed to the sharp financial flurry of 1907. Proving inadequate as a nationwide control of currency and banking, it was tardily superseded by an improved plan in the federal reserve act of 1913.”

The Civil War and Reconstruction, J.G. Randall, D.C. Heath and Company, 1937, pp. 455-458)

Radical Ideology Printed on "Lincoln Green"

Crucial to the success of Lincoln’s creation of fiat money and bond-sales was master publicist and financier Jay Cooke. The latter “subsidized editors and columnists of most of the important papers of the nation” whose journalists were still receiving bribes from him when he pushed for bond redemption in gold. At the end of the war, Cooke worked hard to convince the Northern populace that their onerous debt was justified and “His efforts were supplemented by the Loyal Publications League, which was resuscitated in 1868 in order “to spread throughout the country correct views upon the subject of taxation and currency.”

Bernhard Thuersam, www.circa1865.org

 

Radical Ideology Printed on “Lincoln Green”

“The cruel quandary which the effort to rein in the lower classes created for radicalism became enmeshed in the debate over the greenback currency. Despite all its complexities, the currency question typified the fate of Radical doctrines, for here the Republican party repudiated its own radical handiwork.

Both the plan for a managed fiat currency and the rhetoric subsequently used in its defense were the offspring of the Radical wing of the Republican party. The legal tender bill was taken up by Congress at the end of 1861 because gold loans floated by the Treasury had exhausted the coin supply of the banks and forced them to suspend specie payments.

The Union was confronted by the prospect of runaway bank-note inflation and the sale of bonds below par value, either of which would have raised the cost of prosecuting the war toward a prohibitive level. At this juncture, Elbridge Spaulding, a Buffalo banker and Republican congressman, proposed a solution in defiance of the national traditions of States’ rights, hard money, and bank control of currency: that the federal government should issue its own interest-free notes receivable for all public dues and legal tender for all private transactions.

The value of these notes was to be stabilized by permitting their conversion into government bonds bearing 6 per cent interest, which were payable in five years and redeemable in twenty, commonly known as 5-20s’.

This majestically simple scheme met with furious opposition from the Democrats and many bankers. Pendleton, Vallandigham, Conkling and Justin Morill stood shoulder to shoulder against the bill; but its Radical supporters, led by Thaddeus Stevens, enlisted enough Conservative (and even banker) support for the scheme as a temporary war measure for it to pass the House 93 to 59. Senate opponents were strong enough to graft on an amendment providing for payment of interest on the 5-20 bonds in coin.

This action created the problem of how to raise the promised gold. [but compromise established a dual-currency system]: gold for the importer [tariffs] and bond-holder, greenbacks for everyday domestic purposes.

As the war continued and governmental needs for borrowed funds soared, both the currency supply and the debt structure grew ever more complex. By the war’s end the country was faced with rampant inflation, constant manipulation of gold prices by speculators, a morass of different bond issues, and four major forms of currency – greenbacks, specie, national bank notes, and State bank notes. The task of unraveling the mess fell on Treasury Secretary Hugh McCulloch . . . [and] with authority granted by Congress in March 1866, [he] initiated a steady withdrawal of greenbacks from circulation, and redemption of short-term notes.

[A] bill introduced by Robert Schenck to force a halt to the Treasury’s contraction policy enlisted the support not only of Stevens, Butler and Logan, but also Senator Sherman and Jay Cooke, and of numerous Democrats. The measure swept the House by a vote of 127 to 14, and in the Senate only four Conservative Republicans voted against it. The Conservative economic program had been thoroughly defeated.

Hard money advocates characterized their own position as scientifically sound and moral, and that of their [fiat money] foes as demagogic and dishonest. Speaking for Spaulding’s bill in 1862, Henry Wilson had described the debate as “a contest between brokers and jobbers, and moneychangers on the one side, and the people of the United States on the other.”

Not to be outdone, John Bingham charged the bill’s foes with misconstruing the Constitution for “the purpose of denationalizing the people . . . [and stripping] the power of the people over their monetary interests in this hour of national exigency.”

Here was the Radical ideology in its purest form, printed, as it were, on bills of “Lincoln green.” Understandably, Henry Carey attributed both the economic vigor and the patriotic spirit of the nation to protection and greenbacks . . . Thaddeus Stevens [had] judged the whole national banking system as a “mistake,” [and] declared: “Every dollar of paper [money] in circulation ought to be issued by the Government of the United States.” [Republican editor Benjamin Bannon of Pennsylvania] devised a scheme for the circulation of greenbacks as the exclusive currency of the nation, with national banks serving as distribution centers only.

From the tariff of 1846 until the Republican legislative triumphs of 1862, Bannan argued, nonproductive capital had ruled the land, and now it was again “striving to gain the ascendancy.”

(Beyond Equality, Labor and the Radical Republicans, 1862-1872, David Montgomery, University of Illinois Press, 1981, pp. 340-345)

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