how america paid for the civil war -- 1/25/17

Today's selection -- from Jay Cooke's Gamble by M. John Lubetkin. Philadelphia's Jay Cooke, who became the wealthiest man in America before losing most of his fortune in the Panic of 1873, was the person most responsible for raising money for Abraham Lincoln and the North at that perilous early moment when the country only had $1.7 million in hand. He did it through a powerful innovation -- instead of trying to sell the bonds just to the wealthy and to institutions, he assembled a large sales team and sold bonds to the middle class. In the final tally, over 500,000 individuals bought war bonds, establishing a precedent that was successfully followed in both Word War I and World War II:

Jay Cooke during the Civil War

"Jay [Cooke]'s tiny banking house [in Philadelphia] opened just as the Civil War began, The first lengthy con­flict of the industrial era, the war forced both sides to design, construct, and operate effective logistical systems as well as to raise money systematically. Besides raising taxes, another option was to print paper money and hope for battlefield success. This salutary approach (if one is not upset by inflation) worked quite well for the South but proved flawed after Gettysburg and Vicksburg. Unfortunately for the North, the Treasury had just $1.7 million in hand when Lincoln took office and was soon spending a million dollars a day. Given the lack of cash and what little tariffs and fees brought in, the federal government decided to assume a 90-day war.

"Neither [Treasury Secretary Salmon] Chase nor Lincoln wanted to finance the war by printing money or adding high income taxes; so they temporized, attempting to sell bonds.

"Following Fort Sumter, Cooke was determined to assist the North. ... While most Northern states gave the federal government men, equipment, and cash, Pennsylvania, which had promised 10,000 troops, was stymied because of previous bond defaults. Cooke volunteered to sell the bonds but was rebuffed. He then watched helplessly as the state's financial officials discovered that they could not sell the bonds. Finally, they sheepishly came back to him. Upon receiving approval on May 28, Cooke charged ahead with his old friend Anthony J. Drexel, Philadelphia's dominant banker. In three weeks they sold over $3 million in bonds. Cooke himself subscribed $10,000, which became public knowledge and added to the public's faith in him: he sold only securities in which he also invested.

"On July 21, 1861, the North was defeated at Bull Run. Federal censors tried to block the news, but a Philadelphia Inquirer reporter slipped back into Philadelphia the next morning. The news quickly spread, and businessmen wandered the streets in shock. Cooke, as surprised as anyone, swung into action. Instead of trying to gloss over the battle, he made it a rallying cry, just as the Alamo had been or Pearl Harbor and the World Trade Center would be. Going from one downtown office to another, Cooke had $l.75 million in pledges by noon, twenty hours after the battle's end. He instantly became a national hero and knew he had a workable formula, whereas Chase saw a competitor grabbing headlines. Probably prodded by Lincoln, Chase took Cooke with him to New York in August as the government tried to raise $50 million. ...

"Cooke became Chase's advisor for a $150-million bond program set for late 1861, but Chase limited his sales territory to only Philadelphia and nearby New Jersey, allowed nothing for advertising or operations, and left him on a commission­-only basis. Nevertheless, Cooke enthusiastically went after a wide audience by mixing patriotism, small-denomination sales, and public awareness. Traditionally only the wealthy had been solicited, but his instincts said that the North's huge number of middle-class artisans, merchants, and farmers felt that the war was a noble cause and wanted to participate. Writing much of the copy himself, Cooke advertised in English and foreign-language papers. He also played hardball: publishers not carrying the patriotic stories that he submitted could forget advertising dollars. His partici­pation, Josephson wrote, 'was so brilliant ... he sold so much more than the other bankers (about one-fourth of the total) that his demands (to run the entire program) could not long be resisted.' Cooke had done nothing less than formulate bond sales in the United States and Great Britain for World Wars I and II. ...

"At Lincoln's urging, on March 7, 1862, Chase appointed Cooke 'Subscription Agent for National Loan,' giving Jay sales control of all U.S. bonds. The position was undefined, Chase was clueless, and Jay quickly expanded his role. Josephson wrote: '[He] curbed or prodded speculators as he pleased ... [and] in his onward rush he had scrambled over the heads of the older cliques of financiers.' The Cookes knew more about government plans than any other banking house and consistently invested with their inside knowledge. As more Washingtonians banked with them further information came, in turn leading to even more profits and depositors, including John Wilkes Booth. There was never a hint of impropriety concerning bond sales; as the profits from the Philadelphia and Washington offices were a fraction of Jay's wealth at the war's end, the explanation for his great wealth lies in his timely use of insider information. ...

"In the 1863 campaign Cooke sold $511 million in bonds. Drawing not a penny in advance, he fielded an organization including 2,500 salesmen. Sales reached $3 million a day; and the Treasury, which had to sign each bond, was back­logged for weeks. After all expenses were paid, Jay Cooke & Co. netted $220,000: 1/25 of 1 percent. Nevertheless, the figure stirred up a storm of protest. The problem arose from Jay's making the sales look effortless: predictably, other bankers and politicians now wanted to share in the profits. ... In 1864 Cooke came under congressional investigation but was fully cleared. ...

"Mid-1864 saw another Northern crisis. Grant and William Tecumseh Sherman were stalled, casualties were horrific. Jubal Early's raid on Washington left Lincoln's reelection uncertain, and the $3 million-a-day war effort was in chaos. Chase resigned on June 29 and was replaced by Senator William Fessenden, who met with Cooke in July but -- put off by him -- gave him no business. In October, however, with only $5 million of a $40-million bond program sold, Fessenden gave Cooke $10 million, which he quickly sold. Cooke asked for the remaining $25 million and also sold these bonds. With Lincoln reelected and Congress now friendly, Cooke had sold another $200 million by February. On March 3, 1865, Congress approved the largest bond sale of the war, $600 million. Cooke said he could sell it all and, without opposition, was given the contract. ... Sales ended in July at $830 million ... with over 500,000 people purchasing bonds."


M. John Lubetkin


Jay Cooke's Gamble: The Northern Pacific Railroad, the Sioux, and the Panic of 1873


University of Oklahoma Press


Copyright 2006 by the University of Oklahoma Press


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