by Philip Leigh
Kirby Smith continued to sell cotton to sustain Confederate armies west of the Mississippi through the end of 1864. But the 1864 regional cotton crop was poor. By Christmas, his armies owed $40 million to citizens from whom goods had been purchased or impressed with vouchers. As merchants increasingly stopped accepting the vouchers, the cotton-impressment system began to collapse. In February 1865, Kirby Smith's chief quartermaster advised him, “We…cannot impress; have no currency; the army is in want; it cannot be supplied.” The next month, Smith authorized his chief of subsistence to seize whatever supplies were required by force, regardless of whether vouchers were accepted. In one of its final actions, Congress later affirmed Smith's decision with a new act in mid-March requiring citizens from whom supplies were impressed to accept promissory notes throughout the Confederacy, and not merely the Trans-Mississippi.57
In January 1865, it was discovered that the general in charge of the Texas militia had embezzled every cent earned by the Texas Military Cotton Board during the preceding six months. He and an accomplice had deposited the money in a Havana bank. Before it could be recovered, the war was over. In the final months, Kirby Smith's Cotton Bureau was hopelessly in arrears. It did not have the money, or cotton, to pay for items purchased in the concluding months. The bureau and Kirby Smith were accused of fraud and corruption. The San Antonio News wrote that he “has been engaged in Cotton Speculation on his own account. We know that he has been trading, openly, with the enemy.” The complaints reached Richmond, where President Davis appointed three prominent Westerners to investigate the matter a month before Lee's surrender at Appomattox.58
Nothing came of the investigation. Like Banks, Kirby Smith was more victim than villain. Outraged politicians and civilians wanted somebody to blame for the harsh living conditions in the Trans-Mississippi during the closing months of the war. Although the cotton impressments were undeniably a hardship, there is no significant evidence that Kirby Smith personally profited from them. While the record of Major McKee alone confirms a level of corruption in the Cotton Bureau, it does not appear that Kirby Smith profited.
After the war, Smith immigrated briefly to Mexico but returned a year later to head the Atlantic & Pacific Telegraph Company. The company failed within a few years, and in 1870, Smith was named president of the University of Nashville. He left Nashville in 1875 to become a mathematics professor at the University of the South in Sewanee, Tennessee, until 1893, when he died of pneumonia. He was the last surviving Confederate lieutenant general.
Shortly after the Red River campaign, the US Congress and certain Union military leaders could no longer abide the volume and endemic corruption of intersectional trade. Congress enacted legislation intended to control it, while a number of military commanders became less accommodating of speculators—even those who had signed authorizations. Nonetheless, the potential profits remained tantalizing. Lincoln concluded he could not allow the availability of cotton to dwindle to a trickle without unacceptable economic, political, and diplomatic consequences. So he adopted policies to circumvent the congressional restrictions and opened between-the-lines trading wider than ever before.59
Nine
Eyes Tightly Shut
IN THE SECOND HALF OF 1864, BOTH THE FEDERAL CONGRESS and military tried to reduce illicit trade with the Confederacy. However, even as they were making progress toward curtailment, President Lincoln implemented policies to open interbelligerent trade wider than ever.
The Purchasing Act of July 2, 1864, which prohibited naval prize law on inland waters, also required that the initial buyers of items originating behind Confederate lines be employees (agents) of the US Treasury, as opposed to private citizens. (Previously the Treasury exclusively granted a limited number of private citizens authority to go beyond enemy lines, where they could buy cotton and other produce, transport it back to the Union side, and sell it on the open market.) As explained in chapter 2, Lincoln circumvented the intent of the Purchasing Act by specifying the manner in which Treasury Department regulations were to be applied. As implemented, Treasury rules applicable to the act permitted anyone delivering cotton to Treasury agents to be paid a greenback currency price equal to three-fourths of the market quote in New York.
Since greenbacks were not backed by gold, they traded at a significant markdown to specie. The discount was 60 percent in summer 1864.1 Nonetheless, they were generally more valuable than Confederate money. Lincoln reasoned that a proliferation of greenbacks within the rebellious regions would promote loyalty to his government.
Thus, any Northerner could become a “cotton trader” by infiltrating into the Confederacy, purchasing cotton at whatever price might be arranged, and delivering it to Treasury buyers at depots such as Memphis and New Orleans, where the sales price was 75 percent of the New York market quote. Finally, after the transaction, sellers were authorized to return to the Confederacy with noncontraband supplies equal to one-third of the value the cotton sold to the Treasury agent. The ultimate consumers of cotton, such as the New England mills, were provided opportunities to buy the inventories thus accumulated in the depot cities at periodic auctions.
Lincoln's provision enabling traders to return to the Confederacy with supplies equal to one-third of the value of the sold cotton enabled traders to pyramid profits for two reasons. First, a great many noncontraband supplies, including food and clothing, were desperately needed by Confederate armies. At the time there was no clear definition of “contraband.” Second, the prices of the supplies traders were allowed to return beyond enemy lines were much higher in the Confederacy than in occupied depot cities. For example, bacon was only 22 cents a pound in Memphis but could bring six dollars a pound behind Rebel lines. Thus, traders returning with valued merchandise could use the supplies to purchase more cotton than they could afford on the previous trip. Therefore, accumulated profits would grow in a compounding manner following each round-trip.2
Lincoln found a second loophole to the restrictions of the Purchasing Act. Article 55 of the July 29, 1864, Treasury regulations stipulated that cotton previously bought and paid for could be brought within Union lines. The president and authorized Treasury officials could issue permits for such transport. Lincoln signed about forty. Those with his signature were more valued than ordinary Treasury Department permits and were sometimes sold, or even sublet. Such permits also enabled holders to sell their cotton at the full market price as opposed to the 25 percent discount otherwise required by the Purchasing Act.3
One permit issued by Treasury Secretary Fessenden was for thirty-five hundred bales in Mississippi for the seemingly ubiquitous William Butler. Another permit held by the Belgian consul in New Orleans authorized the diplomat to remove about twenty-three thousand bales. But in many instances the military blocked such movements. Evidently, several commanders were emboldened by the stance of Ulysses Grant, whose antitrade viewpoint became more influential after his appointment earlier in the year as the first US lieutenant general since George Washington, when Grant was simultaneously made general in chief. On September 13, Grant telegraphed Stanton, “[T]he amount of support received by our enemies through either the corruption of Treasury agents and post commanders is fearful, and should be stopped in some way.”4 Whether they knew of the wire to Stanton or not, most army generals were aware of Grant's hostility to trading with the enemy.
In any event, General Stephen Hurlbut told the Belgian consul that the military situation simply did not allow him to comply with Fessenden's permit. In New Orleans, General Canby seized all cotton entering his lines for later adjudication. Hurlbut, Canby, and other commanders effectively ignored Lincoln's directive strictly forbidding army or navy interference with cotton transactions applicable to Article 55.5
Consequently, on September 24, when Lincoln and Fessenden drew up Treasury procedures applicable to the Purchasing Act, they included a provision that any army or navy personnel interfering with the transportation of goods in either direction would be guilty of
a military offense and punished accordingly. Treasury agents were instructed to accept applications from anyone saying they owned “or controlled” products beyond the lines. Such persons were to be granted a certificate identifying the goods to be conveyed, and agents were to request safe conduct for certificate holders. Finally, the procedures were to become effective when promulgated by the secretaries of war and the navy. War Secretary Stanton complied by October 6, but Navy Secretary Welles delayed until December 1.6
The delayed dissemination and other military steps used to restrict interbelligerent trade in the second half of 1864 frustrated Lincoln. He was particularly sensitive to the fact that, as in the Confederacy, cotton was an indispensible prop to the Union government's currency. In a letter to General Canby, Lincoln explained, “The way cotton goes now carries as much gold out of the country as to leave us [only] paper currency…[which] is so far depreciated as that for every hard dollar's worth of supplies we obtain, we contract to pay two-and-a-half dollars hereafter.”7
The president was arguing that Fessenden's Treasury requirement that cotton be purchased with greenbacks instead of specie would reduce the outflow of the nation's gold reserves that were so vital to its international financial status. Senator Wilson of Massachusetts commented in support of Lincoln's point by noting that US gold reserves declined about $5 million to $6 million to pay for overseas imports during autumn 1864, when generals like Canby and Hurlbut had curtailed between-the-lines trading.8
The floodgates opened after the military rules were promulgated. During the first two weeks of operation at Memphis alone, certificates were issued for nearly forty thousand bales. General Washburn, who was the brother of Illinois congressman Elihu Washburne, complained that the system was widely abused. (The brothers spelled their surnames differently.) He did not believe that one man in a hundred who claimed to own (or control) cotton behind the lines actually did own (or control) a single bale. He estimated that Memphis Treasury purchasing agent George Ellery had issued hundreds of fraudulent permits. In New Orleans, General Canby wrote sarcastically that the local Treasury agent had been so busy issuing permits that “every bale of cotton in the Rebel lines is covered by permits.”9
Ellery used other methods of leveraging his authority for personal gain. One was an illegal technique of enabling cotton sellers to avoid the mandatory 25 percent price discount to the New York cotton quote required by the Purchasing Act. For a fee, he would simply buy the cotton at 75 percent of the New York quote for a government account as required, but immediately resell it to those he bought it from for the same price. They could then sell it on the open market at the full New York quoted price. Evidently, Ellery felt that he should get his share of the largesse after discovering that others of higher rank were doing the same. For example, one merchant told Ellery that getting cotton out of the parts of Mississippi under the command of General Dana was accomplished by paying a fee to an attorney recommended by Dana's headquarters staff. The pertinent incident involved a fee of $25,000, but it was apparently a routine practice within Dana's domain.10
Leonard Swett, who helped engineer Lincoln's 1860 presidential nomination in Chicago, received three permits in December 1864 for one hundred fifty thousand bales. Swett's permits unrealistically covered cotton in every Confederate state except North Carolina and Virginia. Georgia planter Samuel Noble received a permit for two hundred fifty thousand bales. New Yorker Hanson Risley, who supervised all depot city Treasury agents, approved Noble's application. When questioned by a congressional investigating committee, Risley explained that Lincoln's bodyguard, Ward Hill Lamon, accompanied Noble and that the president also recommended the Southerner. In the three months from November 1864 through January 1865, Risley issued permits totaling nine hundred thirty thousand bales.11 Most of the recipients were men recommended by Lincoln or New York political boss Thurlow Weed, who was also a thirty-year political ally of Secretary of State Seward.12
Risley's acquaintance with Seward also predated the war. After the war, Seward became infatuated with Risley's daughter Olive, who was in her mid-twenties when the secretary was in his late sixties. In an effort to stop tongues wagging, Seward adopted Olive when he was seventy years old.
Ward Hill Lamon recommended his own brother, Robert, for three permits totaling fifty thousand bales. One of Robert's Chicago business partners, James Patterson, wrote Ward Lamon that a permit holder told him “such permits are obtained by proper influences” and asked that Ward provide Patterson a permit in Robert's name. Patterson concluded, “I can make more money than a jackass can carry, but it must be through your instrumentality.” Ward Lamon became a part of the scheme and soon sought permits of his own. In his request, he reminded the president of the administration's “unceasing…[determination] to deprive the Confederacy of its greatest element of material strength and…to make…cotton the basis of this government's currency: for cotton is gold.”13
Even Vice President Hannibal Hamlin (replaced by Andrew Johnson on the 1864 ticket) sought to profit from intersectional trade. Expecting to share in the proceeds, Hamlin asked Lincoln to provide a 23,640-bale permit to Fergus Penniston authorizing him to transport the cargo through enemy lines into Union-controlled territory. Lincoln obliged with a note advising all army, navy, and civil officers to provide Penniston “all the facilities that may be required to carry out the design of this permit.”14
Few Northerners were better able to gain cotton-trading favors than Thurlow Weed. He had a well-earned reputation for influence peddling and profiteering. Lincoln was anxious to win New York in the 1864 presidential election because his margin in the state four years earlier was only seven thousand votes. In September 1864, one of Lincoln's private secretaries, John Nicolay, reported learning that Weed intended to raise money for the president's campaign by dealing in cotton.15
That same month, a Weed associate named Draper was appointed customs collector for the port of New York. In December, when General William T. Sherman occupied Savannah, where nearly forty thousand cotton bales were warehoused,16 Draper was sent to the city to take charge of the supply. Navy Secretary Welles was “sickened.” He complained, “The mission of Draper will be a swindle. A [preferential] ring will be formed for the purchase of the cotton, regardless of public or private rights.” Presumably, Welles believed that the ring would be permitted to buy the cotton on bargain terms. Weed had a long association with fellow New Yorker Risley, who had wide powers to negotiate cotton-purchasing contracts. Some of the contracts were arranged at Weed's headquarters in room 11 of the Astor House in New York.17 The New York Chamber of Commerce “reminded” the federal government that Southerners owed the businessmen of New York City unsettled accounts from the early days of secession amounting to $150 million.18
After occupying Savannah, General Sherman could attest to the veracity of a Mark Twain aphorism: “None but an ass pays a compliment and asks a favor at the same time. There are many asses.”19 The general was almost immediately swamped with compliments for his “march to the sea” and flooded with gifts from the North, including cases of fine bourbon, and Humboldt cigars along with invitations to visit elegant New York homes. Some favor seekers were more subtle, and perhaps more successful. Among them might have been those approaching the general through his brother John, who was a senator from Ohio. For example, the senator provided a written introduction for one Daniel Rees, explaining that Rees had “been a fast friend & contributed to my election as Senator.” Given that cotton was trading at about a dollar per pound in December 1864, Savannah's forty thousand bales were worth about $20 million, which is equivalent to almost $300 million in 2013 dollars.20
The temptation among Northern politicians to use influence for profit in cotton trading during the last year of the war proved irresistible to a number of people with otherwise constructive reputations. Among them were some who are highly regarded by modern historians. One example is Thomas Corwin, who had been a governor of Ohio and one of its US senato
rs. He had also served for a time as Treasury secretary under Millard Fillmore.
As minister to Mexico, Corwin significantly aided the Union war effort by keeping the ultimately ascendant Liberal Party under Benito Juarez mostly allied with Lincoln's government. Although he persistently dangled unfulfilled proposals of monetary aid to Juarez, Corwin was decidedly more effective than his Confederate counterpart, John Pickett, who was recalled by Richmond after compiling an embarrassing record. But Corwin's tendency for influence peddling also surfaced as he was serving in Mexico. One of his first acts was to negotiate a monopolistic pact for regular steamship service between New York and Veracruz through a line in which he was a part owner.21
In September 1864, Lincoln's friend William Butler commented, “old Tom Corwin has squat at the door of the Treasury & through [Assistant Treasury Secretary George] Harrington is levying blackmail at a fearful rate.” Harrington was a long-time Treasury Department employee and worked for Corwin when the latter was secretary of the Treasury. When Corwin and Harrington tried to make Butler pay $10,000 for a cotton-trading permit, Lincoln's friend declined and warned he would complain to the president if the two refused to execute the papers without a bribe. Butler claimed that Harrington was a partner in the Memphis cotton brokerage of E. Parkman, Brooks, & Company, which was given a permit for fifteen thousand bales exempted from the restrictions of the Purchasing Act. Within less than two months, Confederate General Kirby Smith reported the same firm offered to buy fifteen thousand cotton bales directly from him at the bargain price of thirty cents per pound in specie when the market price was over one dollar per pound. Kirby Smith said Parkman “brings the authority of the President and Secretary of the Treasury of the United States for the transaction.”22