CHAPTER XLV

THE CIVIL WAR; NONMILITARY ASPECTS

FINANCE

During the Civil War, as in wars generally, the government found it easier to keep the ranks filled with men than to raise the necessary funds to carry the contest through. When the glamour of military service fails to make the country respond, a government can generally resort to conscription. But in the task of filling the treasury there is little opportunity to use the glamour of war as a means of appeal. Paying taxes is an unromantic business anyway, even in war time, and Americans always have been sensitive on that score. It is not as easy to conscript wealth as men. It can be done, but always at the risk of seriously upsetting the business world, on which private incomes depend. Convinced that the war would be short, Congress at first preferred to rely upon loans, by means of which the burden could be shifted forward to the shoulders of later generations. In July, 1861, Chase, the Secretary of the Treasury, was authorized to borrow $250,000,000. At the same time Congress levied a direct tax of $20,000,000, imposed an income tax of three per cent on incomes above $ 800, and increased the tariff rates. From time to time Congress either raised the rates on taxes already in existence, such as the tariff, or imposed new taxes in the form of stamp duties. It took time to realize the returns from these various sources, and Congress bridged the gap by authorizing the famous "Greenback" issues, that is legal tender, non-interest-bearing Treasury notes. The amount issued at first was $ 150,000,000, but before the end of the war they had been increased to $449,000,000. These followed the in evitable course of unsecured issues of paper money, and in 1864 when the Confederate General Early threatened Washington, their value dropped to thirty-five cents in gold. Throughout the war they fluctuated, as reports from the front were favorable or otherwise.

In the course of the war the government raised approximately $ 667,000,000 in taxes, $ 2,140,000,000 in loans, and the amount given

above in Greenbacks. Because the bonds did not sell as rapidly as necessary, in February, 1863, Chase induced Congress to pass the National Banking Act. This provided for the incorporation of banks throughout the country, the note issues of which were to be secured by government bonds. Every bank chartered under the Act was required to purchase bonds equal in amount to at least one third of its paid-up capital. These were deposited with the Treasurer of the United States, and held by him. Then the banks were allowed to issue notes equal in amount to ninety per cent of the market value of the bonds. This measure therefore provided a much-needed currency, and at the same time created a dependable market for the loans. In 1865 state bank notes were driven out of circulation with a ten per cent tax.

This bank note currency was fully secured, as long as the federal government survived, and it proved to be unusually helpful after the Greenbacks drove specie out of circulation. From the middle of the war on to 1879 the ordinary citizen saw no coin. Even the fractional silver currency disappeared, and its place was taken by fractional notes, known in the picturesque language of the day as "shin plasters." By these various expedients the Union raised the necessary funds for pushing the war through to a satisfactory ending.

ECONOMIC PROSPERITY

The success of federal finance was made possible by the extraordinary business "boom" which the North enjoyed during the war. Once the initial shock was over, business promptly recovered, and then it entered upon a period of expansion that was not checked until the great panic of 1873. This prosperity extended to all parts of the Union, and affected every phase of its economic life. The nation was still primarily agricultural, and the heavy increase in farm produce was a material factor in winning the war. There were good harvests every year, especially of wheat and corn, and in 1862 and 1863 there were "bumper crops" of wheat. In 1862 the Union states raised one hundred seventy-seven million bushels of wheat, four million more than the whole country had raised in its best year before the war.

This great agricultural activity was made possible by a number of factors. In 1862 Congress passed a homestead act, by which farms from the public domain were given away to actual settlers. This

tended to increase the acreage under cultivation. Then too in spite of the constant demands of the army, there was no serious shortage of labor because of the widespread introduction of labor-saving machinery. With the help of the machines women could take the place of men in the fields, and they did so, especially in the West. Markets for the heavy agricultural output were found in various quarters. The army required more food than would have been necessary for the same number of men in civil life because of the wastefulness, inevitable and otherwise, inseparably connected with military life. There were also increasing demands for American wheat abroad. In 1861 crops failed all over Europe, while England suffered a second failure the very next year. In 1862 the United States exported sixty million bushels of wheat, three times as much as the average annual export for the preceding ten years.

The manufacturing sections were adding their increased demands for food, while every branch of industry was undergoing a remarkable expansion. The woolen mills were apparently the most flourishing of all. They were rushed to fullest capacity throughout the war, and for those days the profits were enormous. One manufacturer said that in the first few months of the war he had cleared $ 200,000, and he was then making $2,000 a day. The dividends paid by the woolen mills ranged from ten to forty per cent. Under the circumstances mushroom factories sprang up wherever there was available water power. In some parts of Vermont it is possible now to find the ruins of some of those little mills, ten miles away from any railroad. When the war came to an end they went out of business, and the only owners who got anything out of them after that were the more enterprising ones who were able to burn them for the insurance.

In Pennsylvania and the other states where iron and steel manufacturing plants were located, there were signs of prosperity almost equaling those in the woolen centers. The demand for farm implements, farm machines, textile machinery, and of course munitions kept them busy. In Philadelphia fifty-eight new factories were built in 1862, fifty-seven in 1863, sixty-five in 1864. Other cities reported equally interesting figures. It is worth noting that during the war years, more patents were issued than had ever been before in the whole Union. Five thousand were issued in 1864 alone, as against forty-two in the Confederacy.

This expansion in agriculture and in industry, added to the activity

of the War Department in transporting troops and supplies meant an equally big gain for the railroads. Every year of the war, railroad journals reported a steady increase in traffic and dividends. Companies paid off their indebtedness, and made good profits besides. On a number of lines, between 1860 and 1865 the freight and passenger traffic was doubled.

Unfortunately, the roads did not use their increased earnings to improve their equipment or their service. Accidents were far too frequent, and fatalities were increased by the fires that followed every wreck. With wooden coaches, heated by coal stoves and lighted by oil lamps the danger of fire was ever-present. One irate traveler complained that "passengers calculate beforehand upon being detained, frozen, and starved and consider themselves fortunate if they escape with nothing worse." Dining cars were unknown, until after the Baltimore and Ohio tried the first experiment with a lunch counter in the corner of a smoking car. The correspondent of the London Times declared that American travelers seemed to live on nothing but gum drops and tobacco, the only two commodities obtainable on the trains.

The Confederacy presented a very different picture. Never selfsufficing, either agriculturally or industrially before the war, and partly cut off from its sources of manufactures and food, its people had to familiarize themselves with a new type of farming and with manufacturing. Factories were built, notably in Atlanta, and machine shops were constructed, to provide tools and munitions, but there was nothing like the profitable economic expansion just described in the North.

Because of the absence of accumulated capital and the complete dislocation of the economic life of the Confederacy, Jefferson Davis's task of financing the war was much more difficult than Lincoln's. The Confederate Treasury started with about $ 20,000,000 in specie, a quarter of which was the federal money seized in the mints and customs houses when the war began; the rest was secured from the banks, in the first loan. This was soon spent in purchasing munitions and supplies abroad, and when it was gone the government depended upon unsecured note issues. Before the end of the war the Davis government had issued at least $1,000,000,000 in notes. At the beginning of 1863 the Confederate paper dollar was worth thirtythree cents in gold, by the end of that year five cents, and in April

1865 one and six-tenths cents. Flour cost $1,000 a barrel, coffee $40 a pound, wood $5 a stick. When the farmers refused to sell produce for this practically worthless paper, the government seized the supplies it needed. This rapid decline of Confederate credit was revealed again in the market value of the bond issues. The first loan of $ 15,000,000 was quoted at ninety in 1862, and at five or lower in 1864. Early in 1863 the Confederate Secretary of the Treasury, Memminger, arranged through the banking house of Émile Erlanger in Paris, for a loan of $ 15,000,000 at seven per cent. The principal was to be paid in New Orleans cotton six months after the end of the war. Erlanger bought the bonds at seventy-seven and sold them in England at ninety-five and a half. So enthusiastic were the English friends of the Confederacy that they oversubscribed the loan threefold in two days. After Chattanooga the bonds dropped to thirtyseven, and with the final Union victory they dropped to zero. The experience of Germany during the last war shows how far a government may go on insufficient financial resources, and the Confederacy undoubtedly would have lasted longer had it not been for the blockade. This practically throttled the South.

WAR GOVERNMENT

Aside from the military and financial problems both governments had to contend with a variety of difficulties that rarely if ever trouble a country in time of peace. The federal government underwent a vast increase in power, and numerous critics resented the change. Part of this transformation was permanent. The war called for the exercise of national authority in all directions. Congress levied direct taxes, endowed agricultural colleges, gave the Union Pacific Railroad its start, and in general pursued policies which would have scandalized the exponents of states rights. As a result of this widespread assertion of federal authority, in military matters, finance, banking, and education, the old idea of state sovereignty had to give way. At no time since 1865 has there been any doubt concerning the supremacy of the central government.

During the war itself the President assumed the powers of a dictator, and in that capacity authorized measures which were clearly unconstitutional. At the beginning of the war, Lincoln suspended the privilege of Habeas Corpus, although Congress is the only branch of the federal government with the proper authority to take that