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Ways and Means
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“Captivating . . . [Lowenstein] makes what subsequently occurred at Treasury and on Wall Street during the early 1860s seem as enthralling as what transpired on the battlefield or at the White House.” —Harold Holzer, Wall Street Journal
“Ways and Means, an account of the Union’s financial policies, examines a subject long overshadowed by military narratives . . . Lowenstein is a lucid stylist, able to explain financial matters to readers who lack specialized knowledge.” —Eric Foner, New York Times Book Review
From renowned journalist and master storyteller Roger Lowenstein, a revelatory financial investigation into how Lincoln and his administration used the funding of the Civil War as the catalyst to centralize the government and accomplish the most far-reaching reform in the country’s history
Upon his election to the presidency, Abraham Lincoln inherited a country in crisis. Even before the Confederacy’s secession, the United States Treasury had run out of money. The government had no authority to raise taxes, no federal bank, no currency. But amid unprecedented troubles Lincoln saw opportunity—the chance to legislate in the centralizing spirit of the “more perfect union” that had first drawn him to politics. With Lincoln at the helm, the United States would now govern “for” its people: it would enact laws, establish a currency, raise armies, underwrite transportation and higher education, assist farmers, and impose taxes for them. Lincoln believed this agenda would foster the economic opportunity he had always sought for upwardly striving Americans, and which he would seek in particular for enslaved Black Americans.
Salmon Chase, Lincoln’s vanquished rival and his new secretary of the Treasury, waged war on the financial front, levying taxes and marketing bonds while desperately battling to contain wartime inflation. And while the Union and Rebel armies fought increasingly savage battles, the Republican-led Congress enacted a blizzard of legislation that made the government, for the first time, a powerful presence in the lives of ordinary Americans. The impact was revolutionary. The activist 37th Congress legislated for homesteads and a transcontinental railroad and involved the federal government in education, agriculture, and eventually immigration policy. It established a progressive income tax and created the greenback—paper money. While the Union became self-sustaining, the South plunged into financial free fall, having failed to leverage its cotton wealth to finance the war. Founded in a crucible of anticentralism, the Confederacy was trapped in a static (and slave-based) agrarian economy without federal taxing power or other means of government financing, save for its overworked printing presses. This led to an epic collapse. Though Confederate troops continued to hold their own, the North’s financial advantage over the South, where citizens increasingly went hungry, proved decisive; the war was won as much (or more) in the respective treasuries as on the battlefields.
Roger Lowenstein reveals the largely untold story of how Lincoln used the urgency of the Civil War to transform a union of states into a nation. Through a financial lens, he explores how this second American revolution, led by Lincoln, his cabinet, and a Congress studded with towering statesmen, changed the direction of the country and established a government of the people, by the people, and for the people.“Lowenstein’s book is a compelling account of how the United States acquired and exploited the stunning power that modern statehood delivers.” —The Washington Post
“Ways and Means represents nonfiction writing at its best, using an easy prose to enlighten with thought provoking, sometimes controversial, ideas from the very beginning.” —New York Journal of Books
“Ways and Means, an account of the Union’s financial policies, examines a subject long overshadowed by military narratives . . . Lowenstein is a lucid stylist, able to explain financial matters to readers who lack specialized knowledge.” —Eric Foner, New York Times Book Review
“[Lowenstein] makes what subsequently occurred at Treasury and on Wall Street during the early 1860s seem as enthralling as what transpired on the battlefield or at the White House . . . His keenly perceptive study details how the protagonists eventually came to reimagine their finances—and ultimately, their economic cultures . . . Captivating.” —Harold Holzer, Wall Street Journal
“[A] fresh look at the president’s essential Republican roots as a self-made man, rather than slaveholder, and belief that anyone could be successful in America . . . An accessible exploration of how war enabled the federal government to acquire real financial power.” —Kirkus
“Lowenstein delivers a fine account of a crucial yet overlooked aspect of the American Civil War.” —Booklist
“Journalist Lowenstein (The End of Wall Street) argues in this masterful history that the financing of the Civil War was as crucial to the shaping of American history as the Emancipation Proclamation and the defeat of the Confederacy . . . Lucid, character-driven . . . Full of fascinating historical tidbits and clear explanations of complex financial and political matters, this is a must-read for American history buffs.” —Publishers Weekly (starred review)
“In Ways and Means, Roger Lowenstein gives a gripping account of how Lincoln and his secretary of Treasury, Salmon P. Chase, successfully won the financial war against the South, by a combination of better economic policies and by raising unprecedented amounts of money in unprecedented ways. It also tells the deeper story of how Lincoln used the opportunity thrown up by war to forge a new economic union, even as he was remaking the political union. Ways and Means is a tour de force of narrative history, riveting and eye-opening, that provides a novel and original perspective on our greatest president.” —Liaquat Ahamed, Pulitzer Prize-winning author of Lords of Finance: The Bankers Who Broke the World
“In this riveting narrative, Roger Lowenstein has delivered an outstanding contribution to the rich literature on the Civil War. With deft prose, unrivaled financial acumen, and a sure feel for personalities, he brilliantly illuminates the economic history of the war, a dimension so sorely neglected in the past. This volume will certainly rank as the classic treatment of the subject for a very long time to come.” —Ron Chernow, author of GrantRoger Lowenstein has written numerous critically acclaimed books, including the New York Times bestsellers Buffett, When Genius Failed, and The End of Wall Street. He has three children and lives with his wife, Judy Slovin, in Cambridge, Massachusetts, and Tenants Harbor, Maine.
One
Two Crises
The sinews of war are unlimited money.
¥ Cicero
Eight weeks after his election as president-New Year’s Eve, 1860-Abraham Lincoln telegraphed an invitation to the Ohio Republican Salmon P. Chase to visit him in Illinois. Lincoln was home in Springfield, assembling his cabinet. He would not take office for another two months, but the postelection interregnum was already momentous. On December 20, a convention in South Carolina had voted 169-0 to break from the Union; the other cotton states seemed likely to follow. Parallel to the secession crisis, the United States was suffering a financial crisis.
It was the troubled state of the finances that Lincoln considered as he wrote to Chase. He had already picked William Seward, his closest rival for the Republican nomination, for the State Department. Lincoln had in mind Chase, a former Ohio governor and senator and also a defeated presidential rival, for secretary of the Treasury. Even before Lincoln took office, the United States was teetering on the edge of insolvency. With America on the verge of disintegrating, trade had slackened, plunging the country into a recession. This had serious fiscal repercussions. Duties on foreign trade were the primary source of government revenue. The prospect of secession cooled business confidence considerably-especially as President James Buchanan pronounced that he was powerless to stop southern states from bolting. His view was by no means unique. None less than Horace Greeley editorialized in the New York Daily Tribune, the most widely read paper in the country, that the cotton states had a right to secede, adding for effect, “we insist on letting them go in peace.” With secession seemingly a fait accompli, duty receipts plunged by about 25 percent.
Making matters worse, Buchanan’s government had lived well above its means, leading to a doubling of the federal debt. More worrisome than the absolute level of the debt-$65 million-was that Buchanan’s secretary of the Treasury, Howell Cobb, had failed to place a sufficient volume of bonds when the opportunity availed. Instead, Cobb was meeting government expenses by selling short-term notes. This was government on a credit card.
Cobb’s inadequacy was surpassed only by his disloyalty. Word had spread on Wall Street that Cobb, a Georgia planter and slave owner, was mocking investors who had subscribed to loans for underwriting a government likely to be dismembered. This did not exactly inspire confidence in the Treasury.
Cobb confided to a friend, “I regard submission to Lincoln as utter & irretrievable ruin and I trust with all my heart that a United South may be brought to regard it in the same way.” In the month following the election, as Lincoln prepared to assume the reins, the finances of the country remained in the hands of a putative traitor, and faith in government securities evaporated.
George Templeton Strong, a New York lawyer who kept close tabs on the market and recorded his impressions in a diary, tracked the steady deterioration on Wall Street. “The financial crisis is already beginning in Charleston and Mobile. . . . Their terrorists [southerners] are confiscating Northern property and repudiating Northern debts. . . . Stocks have fallen heavily today. Southern securities are waste paper in Wall Street. . . . A most gloomy day.”
Northerners were in disbelief that southerners would willingly jeopardize the country’s material wealth. “The people are not yet all fools, even in South Carolina,” The New York Times sighed with palpable frustration. Dividing the country ran counter to the bedrock American story of a new people forging a common prosperity. Ohio congressman John Sherman gave voice to the fear that disunion would interrupt America’s forward saga, rhetorically pleading, “Who shall possess this magnificent capital, with all its evidences of progress and civilization?”
Throughout November and December, financial pressures spread like an advance signal corps of sectional conflict. Southern merchants refused to honor their debts to the North, and banks both north and south began to totter. The merchant Lord & Taylor returned goods from Dixie and peddled them at fire-sale prices. Georgia’s governor advised that northern assets simply be confiscated. This was not a trivial threat. Planters and merchants in the South owed an estimated $200 million to the North. It was not clear if they would pay. It was not clear they could pay.
Panicked over the loss of the cotton trade, northern merchants demanded concessions to keep the South in the Union. In liberal Boston, a well-tailored mob-anxious to mollify southern slave owners-stormed a gathering of abolitionists at Tremont Temple. In New York City, business leaders appointed a committee to go south and give assurances of solidarity. The merchants insisted that the Union do the compromising. As August Belmont, a Democratic financier in New York, put it, “The first steps have to be taken by the north.”
Ominously for the incoming Lincoln administration, lenders were backing away from government loans. Europeans were bailing out of American paper.This created a serious problem, for Cobb’s notes were now coming due. The Treasury lacked the funds to meet either its notes or the government payroll. Since its credit was so damaged, Cobb recommended that it forgo even trying to sell bonds and seek authorization from Congress for yet more notes. Having thus consigned the Treasury to a treadmill of short-term paper, on December 8-citing his “sense of duty” to the State of Georgia-Cobb abruptly resigned.
Congress now authorized $10 million in notes, to be sold at auction; however, only $1.8 million worth of bids were deemed acceptable, and these at a punishing interest of 12 percent (6 percent had been typical). Other bidders demanded as much as 36 percent, signifying a complete lack of confidence in American credit.
With an interest payment due January 1, Cobb’s successor frantically turned to John J. Cisco, the assistant secretary of the Treasury in New York, who was close to the city’s bankers. Cisco persuaded John A. Stevens, president of the Bank of Commerce, the largest bank in New York, to seek a loan from the city’s financial titans. On the evening of December 27, 1860, Stevens and a lieutenant, Henry Vail, drove in horse and carriage to the homes of leading financiers, begging them to stave off a government default. Appeals were made to duty and patriotism, but the syndicate pledged a mere $1.5 million, also at 12 percent. As if to emphasize the banks’ utter lack of faith in the Treasury, Vail stipulated that the proffered funds were to be used “expressly to meet interest on Government debt due first January.”
For Lincoln, naming a Treasury secretary was crucial. But having won the presidency with just under 40 percent of the popular vote, he was constrained by politics. He bore a large debt to Pennsylvania, a crucial battleground state that he had swept thanks to Republican support for the tariff, the decisive issue in the iron and coal districts in the western parts of the state. Lincoln was mindful (at times overly) of the demands of patronage, and his convention managers had promised Treasury to Simon Cameron, a political hack who was one of the state’s senators. When Lincoln telegraphed Chase, he did not quite have a job to offer.
Chase arrived in Springfield a few days later. Weary from riding four different railroads over two days, he booked a room and sent his card to Lincoln’s home with the message that he would call at a convenient time. The President-elect, dispensing with formalities, immediately called on his guest, a friendly gesture that struck Chase as slightly undignified. Oddly, given their prominence in Republican circles, the two had never met. Lincoln seemed every bit the prairie lawyer, his clothes disheveled, his manner lighthearted. Chase was tall, striking, aloof. At the outset, Lincoln sheepishly confessed, “I have sent for you to ask whether you will accept the appointment of Secretary for the Treasury, without, however, being exactly prepared to offer it to you.” For the second time, Chase’s tender sensibilities were pricked.
The visit did not go poorly even if it did not go well. Chase and Lincoln got acquainted and did much talking. Chase stayed through Sunday and accompanied the Lincolns to church. He did not exactly loosen up, though his host prodded him with self-effacing humor. The two might have struck a rapport had they realized all they had in common: both reared on the frontier (although Chase had been born in New Hampshire) and both lawyers who had overcome difficult beginnings. Chase’s lineage, unlike Lincoln’s, was distinguished: an uncle was a senator and his father was a successful farmer and legislator and a friend of Daniel Webster. However, his father died when Salmon was nine. His mother had sent him to live with another uncle, an episcopal bishop in Ohio-who by all accounts was a stern and cold guardian. Perhaps resentment over his fall from privilege had nurtured in Chase such an acute sensitivity to affronts.
Even for that era, the fifty-two-year-old Chase had suffered uncommonly bad luck. He had buried three wives as well as three children, and seemed to harbor a survivor’s anguish. As if to protest an unjust fate, he lamented to a friend, “The lord hath dealt very bitterly with me.” Lincoln, of course, knew sorrow as well. Before courting Mary Todd, he had been deeply smitten with Anne Rutledge, who died suddenly of typhoid. He had lost his mother when young, and later one of his sons. But in Lincoln, personal losses nurtured a stoic acceptance.
There were other differences. The pious Chase tended to see right and wrong in absolutes. Lincoln appreciated that political issues were often matters of degree. Once, during his single term in Congress, defending an internal improvement bill against a withering attack, Lincoln observed, “There are few things wholly evil, or wholly good. Almost everything, especially of government policy, is an inseparable compound of the two.” Gradualism was in his nature.
Improbably, given the job he was preparing to offer, it was Lincoln-not Chase-who had spent his political life immersed in economic issues. As a westerner, his formative experiences were of growing up in country deprived of good roads and bereft of banks. He had never forgotten his family’s painstaking journey to Illinois, when he had driven an oxen team across the muddy flats. The store where he had clerked, which subsequently failed, had schooled him to the social necessity for banks. “Money,” Lincoln recognized, “is only valuable while in circulation”-a significant insight. Ever since his first campaign, for the Illinois legislature, at age twenty-three, he had advocated a federal bank to modernize the financial system and furnish the people with a workable currency.
During his four terms in the legislature, Lincoln had tirelessly supported the Whig program of government improvements. He had proclaimed that his “highest ambition” was to be the DeWitt Clinton (builder of the Erie Canal) of Illinois. His waterway and rail projects had resulted in overbuilding, and the state bank failed but-important for a future wartime president-his expansionist fiscal tendencies survived. Lincoln’s goal for what the federal government could accomplish was essentially a national version of the activist program he had pushed in Illinois.
Above all, Lincoln was fixated on promoting prosperity. As an attorney earning $3000 a year when he ran for president ($98,000 in today’s money), he rejected efforts to demonize the rich and foreswore “any war upon capital.” His railroad clients, a big part of his law practice, steeled him against the common prejudice against the corporation. Lincoln was hardly an apologist for business-he also took cases against the rails, and he always identified with working people. The point is that his work sensitized him to the Whiggish idea that business was a constructive force, conducive to material progress. Once, when defending the Rock Island Bridge Company (the owner of the first bridge to span the Mississippi River) against a steamship owner who had collided with the bridge and wanted it taken down, Lincoln nearly cried, “Must the products of the boundless fertile country lying west of the river for all time be compelled to stop on the western bank?!” This was a plea not only for his client but for American prosperity.
Chase’s economic knowledge was limited, and what views he held were, from the Republican point of view, suspect. Like most of the Republican leaders, Chase had started out as a Whig. But early in his career, he flipped, joined the Democrats, and adopted Jacksonian economics, essentially a set of prejudices against high finance and paper money, and against federal interventions. Chase’s innate suspiciousness darkened his view of bankers, a crucial constituency for the Treasury. He also disdained the tariff-the standard position of Democrats, who were hostile to federal interference and protective of farming interests. It would be a simplification to call Chase’s philosophy the opposite of Lincoln’s, but not entirely wrong.
Despite their differences, each man saw much to admire. Chase scribbled in his diary after the visit, “He is a man to be depended upon.” Expanding on this favorable impression, he confided to a colleague, “Our conversations were free & unreserved. All I saw & heard impressed me with a high idea of his ability, sincerity, fidelity to political principle & absolute integrity of character.”
Lincoln had expected to be impressed. He was grateful that Chase, almost alone among Republican leaders, had come to Illinois in 1858 to support his bid for the Senate. And he was familiar with Chase’s trailblazing work in antislavery. In the 1840s, Chase had written platforms for a pair of third parties, Liberty and Free Soil, whose doctrines were ultimately absorbed by the Republicans.
Lincoln’s and Chase’s experiences in antislavery were a mirror image of those in economics: Chase had been more engaged. Chase had attended Dartmouth and, thanks to his guardian uncle, studied the law under a U.S. attorney general. He had set up practice in Ohio, where he distinguished himself by compiling the three-volume Ohio Statutes. Deeply religious, Chase was ripe for a crusade, and Ohio turned out to be a “volcanic fault line,” as the modern-day writer and political operative Sidney Blumenthal aptly put it, in the slavery crisis. Northern Ohio, settled by New Englanders, was heavily antislavery, a reliable depot on the Underground Railroad. Cincinnati, in southern Ohio, where Chase established himself, had inherited the prejudices of nearby Kentucky. In 1836, a mob destroyed the printing press of an abolitionist publisher in Cincinnati named James Birney, tossing it into the river. When the mob went looking for Birney at a local hotel, Chase hurried to the entrance and blocked their path. Told he would pay for his actions, Chase coolly replied, “I can be found at any time.”
Now engaged in antislavery, he took the case of an Ohio farmer accused of sheltering runaways from Kentucky. He argued incisively that the defendant was innocent because once a slave crossed into a free state he ceased to be a slave, not because the law of Ohio freed him, “but because he continues to be a man, and leaves behind him the law of force which made him a slave.” His penetrating briefs, even if of limited success in antebellum courts, quickly became part of the canon of antislavery lawyers. Moreover, Chase buttressed his legal arguments with persuasive scholarship. Researching Jefferson’s contribution to the 1787 Northwest Ordinance, which forbid slavery in the future Great Lakes states, he spread the gospel that the Founding Fathers had all along been opposed to slavery, and hoped for its extinction.
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