Lincoln’s war administration and deficit financing ushered in the modern American state which remains in existence today. The various Bureaus, Departments and revolutionary measures created for the purpose of increasing federal power were all linked to his total war-effort, including the restructuring of currency and banking. Author Bruce D. Porter (War and the Rise of the State, Free Press, 2002) wrote that “Appomattox thus represented not just the defeat of the South, but the defeat of the whole Southern economic and political system, and the triumph of a state-fostered industrial and financial complex in the North.”
Bernhard Thuersam, www.Circa1865.org
The True Result of Appomattox
“[in Herman Melville’s postwar] poems he recognized the tremendous costs, especially through the loss of freedom and the end of the founders’ dream for America as a result of the North’s victory. He viewed the construction of the new iron dome on the Capitol in Washington, DC, which replaced the wooden one, as a symbol of America’s future.
Bruce Porter’s well-documented study [of the war] relates some of the economic costs of the Civil War:
In connection with the war the Lincoln administration attempted to intervene in areas of the national life that the federal government had never touched before . . . Prior to 1861, the national government had been a minor purchaser in the American economy. During the war, it became the largest single purchaser in the country, a catalyst of rapid growth in key industries such as iron, textiles, shoe manufacturing, and meat packing . . .
The Civil War spawned a revolution in taxation that permanently altered the structure of American federalism and the relationship of the central government to the national economy. Prior to the war, over 80 percent of federal revenue had come from customs duties, but despite several upward revisions of the tariffs during the war, those could provide only a fraction of what was needed to sustain the union armies.
On August 5, 1861, the first income tax in US history came into effect, followed by the Internal Revenue Act of 1862, which levied a whole series of new taxes: stamp taxes, excise taxes, luxury taxes, gross receipt taxes, and inheritance tax, and value-added taxes on manufactured goods. The latter Act created the Bureau of Internal Revenue, perhaps the single most effective vehicle of federal power ever created . . .
Neither taxes nor paper dollars, however, came close to covering the enormous costs of the war. Dire fiscal straits forced the federal government to borrow over 80 percent of its cost, or more than $2.6 billion. [The] Lincoln administration created a captive source of credit by granting a monopoly on issuance of the new national currency to banks that agreed to purchase large quantities of federal bonds . . . [and] agree to accept federal regulation and federal charters. Thus, almost overnight, a national banking system came into being.
[Author] Eric Foner writes that the fiscal measures represented in their “unprecedented expansion of federal power . . . what might be called the birth of the modern American state . . .”
(The Costs of War, America’s Pyrrhic Victories, John V. Denson, Transaction Publishers, 1999, excerpts pp. 28-29)