A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror

by Larry Schweikart

  The temporary money gave the nation a wartime circulating medium and also enabled the government to pay its bills. Congress also authorized Chase to borrow an additional $500 million. Nevertheless, the “five-twenty” bonds (redeemable after five years, maturing to full value after twenty-five, and paying 6 percent interest) did not sell as fast as Chase hoped. He relied on a personal friend, Philadelphia banker Jay Cooke, to sell the bonds through a special (though not exclusive) contract. Cooke received a nice commission, but more important, he held a virtual monopoly on the bond sales. In the hands of other men, that might have been a problem, but not with the motivated Cooke, who placed ads in newspapers and aggressively targeted the middle class as well as traditional silk-tie investors. Conceiving the first true “war bond,” Cooke appealed to Northerners’ patriotism, and oversubscribed every issue. He sold $400 million worth by the end of 1863 alone, netting himself $1 million in commissions and making him the Civil War equivalent of Robert Morris.75

  Meanwhile, Chase came up with yet another menu option to accelerate the revenue stream. Using as a model the free-banking laws popular in the North prior to the war—wherein banks would purchase bonds that they would keep on deposit with the secretary of state as security against overissue of notes—in his December 1861 report to Congress, Chase argued for a national banking system in which the banks would receive their charters after purchasing government bonds. Congress passed the National Banking Act of February 1863, which provided for $300 million in national banknotes to be issued by the new network of national banks (who would, in turn, themselves purchase bonds as their “entry permit” into the business). Nevertheless, the law offered no incentive for people to hold national banknotes over private banknotes. By December 1863, fewer than 150 national banks operated, and only in 1864 did Congress fix the loophole by placing a 10 percent tax on money issued by state banks.

  Of all the Civil War legislation—aside, obviously, from emancipation—this act had the most far-reaching consequences, most of them bad. Although Congress increased the number of national banks in operation (1,650 by December 1865), the destruction of the competitive-money/private-note issue system led to a string of financial upheavals, occurring like clockwork every twenty years until 1913. Competition in money had not only given the United States the most rapidly growing economy in the world, but it had also produced numerous innovations at the state level, the most important of which, branch banking, was prohibited for national banks. Thus, not only did the National Bank and Currency Acts establish a government monopoly over money, but they also excluded the most efficient and stable form of banking yet to emerge (although that mistake would be partially corrected in the 1920s). Critics of Lincoln’s big-government policies are on firm ground when they assail the banking policy of the Civil War.

  In contrast, however, the North’s financial strategy far surpassed that of the Confederacy under its Treasury secretary, Christopher G. Memminger, a South Carolina lawyer. Memminger, like Chase, at one time was a hard-money man, and like Chase he also acceded to wartime requirements of quick revenues. He embraced taxation, borrowing, and fiat money. Although the Confederate Constitution forbade tariffs, the CSA’s congress almost immediately imposed a range of duties, and with no supreme court to overrule it, the acts stuck. And in sharp contrast to the U.S. Constitution’s prohibition against export tariffs, the CSA also imposed export taxes.76 By 1863 the Confederacy had adopted a wide range of taxes, including direct income taxes and taxes on gold. Possessing a smaller and less industrial economy on which to draw, the South found it more difficult to borrow money through bond issues, raising one third of its wartime revenue needs through borrowing, compared to two thirds in the North.77 Worse, when the Confederate congress authorized a second $100 million loan in August 1861, planters were allowed to pay for it in cotton, not gold. The Confederacy, thanks to its short-sighted embargo, was already drowning in cotton, and now more of it stacked up as “patriotic” planters subscribed to bonds with more of the worthless fiber. A small foreign loan of $14.5 million in France negotiated by Emile Erlanger brought in only $8.5 million.78

  Thus Memminger copied Chase, far surpassing him in the introduction of fiat money when the Confederate congress began issuing Confederate notes in 1861. Starting slowly with only $1 million, wartime necessity soon drove the CSA to issue more than $1 billion in Confederate paper money, or more than double the number of greenbacks issued to a much larger population in the North. Before long, Confederate money attained a reputation for worthlessness previously seen only in the Revolutionary-era continentals and not seen again until the Weimar Republic’s disastrous hyperinflation in the 1920s.79 A Confederate dollar worth eighty-two cents in gold or silver in 1862 had plummeted to only $.017 in 1865.

  Memminger never dreamed in 1862 that within a few years the Confederacy’s needs for goods and services would become so desperate that the government would resort to outright confiscation—theft of private property. Already, however, the warning signs had appeared, heralding a type of war socialism. While the North skimmed off the top of private enterprise, the South, lacking an entrepreneurial base to match, was forced to put the ownership and control of war production in the hands of government. The Confederacy reached levels of government involvement unmatched until the totalitarian states of the twentieth century: seven eighths of all freight moved on the Virginia Central Railroad was for the government’s account; government work done in Augusta, Georgia, by the main private company, the Augusta Textile Factory, accounted for 92 percent of its total; and the Confederate government created its own powder works, the second largest in the world.80 By the end of the war, all pretense to a free market—which Southern plantation slavery never was—had disappeared as President Jefferson Davis confiscated all railroads, steam vessels, telegraph lines, and other operations, impressing their employees for government or military work. Swarms of Confederate officials soon resembled King George’s agents that Jefferson had warned about in the Declaration. As one North Carolinian recalled, government officials were “thick as locusts in Egypt,” and he “could not walk without being elbowed off the street by them.”81 Government bureaucrats not only confiscated food and other items, “paying” with the worthless money, but also forced both white and black workers onto construction projects for the Confederacy.82 The Confederacy died of big government.”83

  By 1863 the Confederacy was employing seventy thousand civilian bureaucrats as the government itself ran ordinance bureaus, mills, clothing manufacturing, cotton gins, meat packing plants, salt storage sheds, distilleries, vegetable packing facilities, all the while forcing the industrialization of a rural region and literally sucking out its sustenance. Alabama produced four times as much iron in 1864 as any state had prior to the war; yet by 1864, Confederate soldiers were starving in the field. Stories of rebels bartering with Yankees, exchanging shoes or even powder for food, were not uncommon by the end of the war. Across the board—in everything from the treatment of (white) human rights, to freedom of speech and the press, to market freedoms—scholar Richard Bensel found that the North had a less centralized government and was a much more open society than the South. Six specific comparisons of private property rights between North and South, including control of railroads, destruction of property, and confiscation, showed the Confederacy to be far more government centered and less market oriented. Analyzing dozens of specific laws and points of comparisons, with possibly the suspension of habeas corpus the main exception, Bensel concluded that the North’s commitment to liberty in all areas ensured its victory.84

  The Proclamation

  The Seven Days’ Battles had provided an opportunity for McClellan to crush Lee, but once again, the Union forces let the Rebels off the hook. Lee’s strategy, however, was deeply affected by the near defeat. Increasingly, lacking foreign support, the South perceived that it needed to deliver a knockout punch. Lee decided to invade Maryland. Misled into thinking the Marylanders would support the Confe
derate Army, Lee announced he was coming to liberate a “sister state.” Swinging far to the west, away from Washington, the Rebel army entered Maryland at, fittingly, Leesburg on September 5, 1862. Dispatching Jackson with 25,000 men to seize Harper’s Ferry, Lee divided his force in the face of superior odds.

  McClellan, meanwhile, had by default regained overall command of the army in the East. Given the low quality of other commanders, he was Lincoln’s only real choice. His men loved him. He was plodding, but he had inflicted terrible damage on the Rebel army. At the Seven Days’ Battles, for example, despite failing to capture Richmond, McClellan had licked Lee’s best forces. At that point, a jewel fell into McClellan’s hands. A Union soldier picked up three cigars off a fallen Rebel officer, and found them wrapped in the actual orders Lee had given his company commanders. All the battle plans McClellan needed—the disposition of the Rebel army, its size, everything—had just dropped into his lap. He even enthusiastically announced to his staff, “Here is a paper with which if I cannot whip ‘Bobbie Lee’ I will be willing to go home.”85 Then McClellan proceeded to move cautiously.

  Unaware McClellan had intercepted his battle orders, Lee nevertheless realized that he had badly divided his forces and that Union armies were converging on him like bats to fruit. He planned to stake out a defensive position at Sharpsburg, Maryland, along Antietam Creek. There the Potomac River protected his left and rear, but if the Union overran his position, it also would have him in a killing box. On September fifteenth, McClellan’s advance forces located the Confederates and should have attacked immediately; instead, despite outnumbering the Rebels 87,000 to 35,000, McClellan hesitated. Finally, two days later, the battle commenced. While all the fighting exceeded human description in its savagery and desperation, the worst of the carnage occurred when Union forces attacked across open ground against Confederates dug in behind a sunken road. It was a premonition of Gettysburg, but the Yankees soon quit and outflanked the road to the south, peppering the Southern ranks with fire from the front and two sides. On September eighteenth, after two bloody days, the Confederates withdrew, and, incredibly, McClellan did not pursue them.86

  Lee could technically claim victory since McClellan had not driven him out, but neither side could take much heart in the combined numbing losses of 24,000 men killed or wounded. It was the single bloodiest day in American history—September 11, 2001, notwithstanding. Although the numbers of men littering the battlefield in blue and gray uniforms were almost evenly divided, the Confederates again absorbed a disproportionate amount of punishment, losing well over 22 percent of their entire force. Yet McClellan inexplicably missed an opportunity to pursue Lee and use his superiority to end the war. An aggressive follow-up attack might have finished Lee off then and there, and McClellan’s failure cemented his dismissal. Yet Lee’s withdrawl under federal guns gave Lincoln the window of opportunity he needed to inform his cabinet of one of the most important proposals in American history.

  For several years Frederick Douglass, the former slave who used his newspaper as a clarion for abolitionist columns, had edged Lincoln toward the abolitionist camp. He expressed his frustration that Lincoln had not embraced abolition as the central war aim in 1861, and continued to lament the president’s unwillingness throughout 1862. After the Emancipation Proclamation, however, Douglass observed of Lincoln, “From the genuine abolition view, Mr. Lincoln seemed tardy, cold, dull, and indifferent, but measuring him by the sentiment of his country—a sentiment he was bound as a statesman to consult—he was swift, zealous, radical, and determined.” Lincoln had inched further toward emancipation since July 1862, when he had met with a group of border-state representatives in the White House with another proposal for gradual compensated emancipation in the border states. “The war has doomed slavery,” he told them, and if they rejected compensation at that time, they would not get a penny when it disappeared.87 He received a chilly reception. Why should they—loyal Unionists—free their slaves when there was a chance that the Rebels might still come back into the Union and keep theirs? Lincoln could not disagree with their reasoning. That meeting impressed upon him that “if abolition was to come, it must commence in the Rebel South, and then be expanded into the loyal border states.”88

  Truly, it was a “Damascus Road” experience for the president. The following day, in a carriage ride with William Seward and Navy Secretary Gideon Welles, Lincoln stunned the two cabinet officials by stating that given the resistance and persistence of the Confederates, it was a necessity and a duty to liberate the slaves. Before the flabbergasted secretaries could respond, they saw a different Lincoln—one who in an “urgent voice” informed them that the time had passed when the two sections could reach an amicable agreement. He intended to rip out the “heart of the rebellion,” destroy the institution that had torn the nation asunder, and end the charade that the South could reject the Constitution that created the Union on the one hand and invoke it to protect slavery on the other.89

  Lincoln had firmed up in his own mind the issue that had nagged at him for years. The war was not about union, after all, because the Union as a constitutional entity was itself the result of something else. He put it best at Gettysburg when he said that it was “dedicated to the proposition that all men are created equal.” A union not dedicated to that proposition was no union at all; thus, he seemed to realize, for years he had placed the cart ahead of the horse. For the United States as a union of states to have any moral force at all, it first had to stand for the proposition of equality before the law. The Rebels’ actions were despicable not only because they rent that legal fabric embodied in the Constitution, but also because they rejected the underlying proposition of the Declaration.

  So it is critical that an understanding of emancipation begin with Lincoln’s perception that it first and foremost was a moral and legal issue, not a military or political one. However, Lincoln also understood the plexiform nature of emancipation as it involved the war effort: militarily, it would threaten the South’s massive slave support system that took the place of civilian or noncombatant military personnel behind the lines; diplomatically, it struck at the heart of Rebel efforts to gain British and French support; and economically, it threatened to throw what was left of the Confederate financial system into chaos, depending as it did on slave valuations as assets used by planters to secure loans. The more Lincoln looked at emancipation, the more he liked it.

  Congress had moved toward emancipation with its second confiscation act, which stated that if the rebellion did not cease in sixty days, the executive would be empowered to confiscate all property of anyone who participated in, aided, or abetted the rebellion. Lincoln thought such half measures impractical. Therefore, he determined to brush slavery away in a giant stroke, taking the burden upon himself. On July 22, 1862, he read the preliminary Emancipation Proclamation to his cabinet, making the abolition of slavery an objective of the Union war effort come January 1, 1863.

  Despite the presence of many solid free-soilers and antislavery politicians in the cabinet, the response was tepid at best. Chase ruminated about the financial impact, possibly destabilizing the fragile banking structure. Secretary of War Stanton and Postmaster General Montgomery Blair, though supportive, nevertheless expressed grave reservations. They argued that the nation “was not ready” for such a step, whereas Seward feared that the Europeans would see the proclamation as a sign of weakness—“our last shriek on the retreat.”90 For it to appear legitimate, they argued, emancipation must wait until the Union had a victory in the eastern theater. Grant’s piecemeal deconstruction of Rebel forces in the West was deadly efficient, but it did not constitute a good old “whippin” of “Bobby Lee.”

  Lincoln found those arguments persuasive. He appreciated that emancipation would produce some violent responses in the North as well as the South. There would be race riots, for example. So Lincoln used the remainder of the summer of 1862 to soften up the opposition by touting colonization again—a subject
that he trotted out more as a deflector shield than a serious option. In August 1862, he met with several black leaders in Washington, informing them of a new colonization plan in Central America. “You and we are different races,” he noted, and whites had inflicted great wrong on blacks. Oppression would only continue in freedom, he predicted, and he urged the leaders to consider colonization. Some supported it, but Frederick Douglass called Lincoln a hypocrite, full of “pride of race and blood.”91 Lincoln, of course, was neither—he was a practical politician who realized that the highest ideals had already demanded phenomenal sacrifices and that even in emancipation, the job would just be beginning.

  Douglass’s sincerely felt condemnations aside, Lincoln had moved steadily but inexorably toward emancipation and racial equality. A famous open letter in the Tribune to Horace Greeley, who, like Douglass, thought Lincoln too timid, contained the lines, “My paramount objective in this struggle is to save the Union, and is not either to save or destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it.”92 Missed in the debate about Lincoln’s opinion on race is the fact that he had taken in this Tribune letter another concrete step toward emancipation by claiming in public the authority to free the slaves—something neither he nor any other president had ever advanced. As with a play-fake in football, Lincoln allowed his own views of race to mesmerize proponents and opponents of abolition, absorbing both the attention and the punishment, while his actions moved unflinchingly toward freedom.