CONFEDERATE FINANCES. forms of promises to pay, the notes were decidedly the more popular, representing as they did purchasing power as contrasted with decidedly uncertain investment. Such an attitude naturally tended to embarrass the government and legislation was consequently framed with a view to making the purchase of the bonds more attractive. Through a provision in the Confederate loan act of May 16, 1861, inducements were held out to note-holders to exchange their notes for Confederate government bonds. These inducements did not prove particularly effective, even though they were renewed in the subsequent acts of August 19, 1861, and April 12, 1862. At the suggestion of the Confederate Secretary of the Treasury, C. G. Memminger, of South Carolina, mild compulsion was then resorted to (through a provision in the act of October 13, 1862) whereby all notes not" funded " in 8 per cent. bonds within six months of the time of enactment were, after that date, rendered transferable only for 7 per cent. bonds. For a time this relieved the situation somewhat, but the general distrust of the bonds always operated against their successful placement. As the war progressed, it became more and more apparent that drastic measures would have to be resorted to if the Confederate army was to receive the financial support it required. The funding act of March 23, 1863, provided that if notes. were not funded within four months the privi 119 lege would be lost by forfeit. This was the means of having about $100,000,000 in notes converted into bonds. But the aid was only temporary, for the places of the old notes were almost immediately taken by the new issues which became necessary in order to keep up a semblance of financing the war. A law of February 17, 1864, attempted to deal with the later issues of notes by providing that those still outstanding should be funded in bonds before a specified date, following which all those still remaining in circulation should be taxed out of existence. This law proved as ineffective as were its prototypes of the French and American Revolutions, and marked the beginning of the end of the finances of the Confederacy which then steadily and rapidly disintegrated. Early in the summer of 1864 a new Secretary of the Treasury was appointed in the person of G. A. Trenholm, of South Carolina. By that time, however, affairs were in such a state that it cannot be held as evidence of unfitness against the new officer that he did not possess sufficient ability to turn a tide which was irresistible. In the entire annals of finance there is hardly a more discouraging story than the fiscal history of the Confederacy. Even when the bonds were sold, payment was made in the notes of the same government which were depreciating in value all the while and with which it consequently became more and more difficult to pur 120 CONFEDERATE FINANCES. chase supplies. An attempt was made to obviate this in the act of May of 1861, by the authorization of a series of produce loans. The object of these was to do away altogether with the necessity of getting in the notes and then promptly expending them for supplies at exorbitant rates. Instead, it was proposed to exchange bonds directly for the needed commodities. This measure, like most of the fiscal legislation of the Confederacy, did not, however, work out according to expectations. Farmers having really desirable supplies were loath to part with them for such flimsy security when they could command the high rates of war times and be sure of getting them in money. Perhaps the only commodity which the government secured in any considerable quantity by this means was cotton, for the cotton planters had been cut off from their regular markets by the Federal blockade and welcomed all openings that promised any return, however small. The Confederate government thus came into possession of large quantities of cotton, as well as some tobacco; but, as neither of these could be used by the army to great advantage, they remained idle during practically the whole war, deteriorating rapidly through exposure to the elements or the destructive concomitants of campaigns. Finally in 1863 a portion of the cotton supply on hand was ingeniously utilized in floating a foreign loan. Bonds amounting to $15,000,000 were placed in Europe, with the stipulation that the principal be met in cotton from the government's supply at 6 pence per pound, a rate not only far lower than the prevailing one at that time, but presumably lower than cotton was likely to go for many years. Hopes mounted high in the Confederacy when this piece of fiscal strategy was consummated, but, unfortunately, a large portion of the funds secured by this scheme was lost through mismanagement. Those who took up the bonds fared no better, since these, in common with all the other obligations of the ill-starred Confederacy, were wiped out by the outcome of the war, while the hypothecated cotton never became available. The only persons to receive any particular benefit from the entire transaction were certain foreign shipbuilders and merchants whose services the Confederacy employed. The tax system of the Confederacy was very weak at all times, while the difficulty of collecting the necessary data delayed its imposition at the outset. On August 19, 1861, the Secretary of the Treasury was authorized to levy an income tax of 11⁄2 of 1 per cent., the amount to be apportioned among the various States. Owing to the lack of any organized collecting machinery, the assessment and levy went forward very slowly, and it was not before June of 1862 that any receipts whatever were realized from this source. As a matter of fact, even when returns did begin CONFEDERATE FINANCES. to come in they could really be regarded only in the light of a disguised note-issue, for, as a general rule, the amounts apportioned were assumed by the States themselves and then met with an issue of State treasury notes. From June of 1862 to June of 1863, inclusive, about $18,000,000 was collected in this way. Beginning with April 24, 1863, a series of acts which did not terminate before 1865 imposed a long list of heavy taxes, but the administration of these was so lax that the resulting revenue was almost negligible. The State and municipal taxes levied, likewise played a comparatively insignificant part in the general financial scheme. From the outset reliance was placed almost entirely upon note issues and bonds, and how the latter failed we have already seen. The note-issue policy of the Confederate government amounted to an exchange of the services and goods of the people for the government's government's promises to pay at first at a definite time with interest, later at an indefinite time and without interestthe notes which took the place of coin and other forms of currency. The first issue of treasury notes, which came on March 4, 1861, was for only $1,000,000, interest-bearing, and falling due in one year. The $1,000,000 was doubled before the issue fell due, though the smallest permissible denomination remained at $50. Within a few months of this issue, however, pressing circumstances made neces 121 sary the issue of $20,000,000 non-interest-bearing treasury notes redeemable in two years; and under this act denominations as low as $5 were allowed. Five months after the beginning of hostilities, the Confederacy brought out another issue of such notes, this time of $100,000,000, to which $50,000,000 more was added before the close of that year. Both of these issues were made redeemable six months after the ratification of peace. Toward the close of 1861 interest-bearing callcertificates also made their appearance. More issues followed in April of 1862, the most notable among these being one of $100,000,000 bearing an annual interest of 7.3 per cent. Here the underlying principle was that the inducement of interest would cause investment and consequently keep the notes out of circulation - the problem which the Confederacy was constantly struggling to solve from the outset. Once again, however, the hopes of the administration were doomed to disappointment, for, instead of decreasing it, the new issue actually increased the volume of currency in circulation. All the while a growing demand for notes of small denominations was making itself felt. The answer to this came in April of 1862, in the form of an issue of $1 and $2 notes aggregating $5,000,000. Later this amount was doubled, and in 1863 an issue of fractional currency was added. An act passed in September of 1862 removing all limits on note 122 CONFEDERATE FINANCES. issues was followed by the funding acts of 1863 and 1864, aiming to reduce the excessive issues which had previously prevailed. These two measures defeated their own ends, however, by authorizing new types of is sues, and the result was that the notes in general circulation went on increasing until the close of the war. Another provision of the funding act of 1864, which operated toward the same end, was that postponing the time of redemption of notes until two years after the ratification of peace. Probably a more reckless paper money policy has never been followed by any government. As a result the face value of outstanding treasury notes, which in July of 1861 was only $1,000,000, had increased to $1,000,000,000 by the end of the war. The redundancy of the currency, coupled with the growing doubt bred of the progress of the war - as to the government's ability ever to redeem any of its notes, led to the depreciation of the latter almost as quickly as they were issued. When hostilities were begun gold was at a premium, and it soared higher and higher as the war continued. In September of 1862 one gold dollar was equal to two paper ones; in December of 1863, to twenty paper ones; and early in 1865 to sixty paper ones. This unbroken depreciation of paper led to the suggestion that the acceptance of notes at their face value be made obligatory. In the North this policy was put into practice, but the strict constructionist principles of the Con- 66 Such an alarming increase in the price of necessities naturally brought a cry for more currency. To this the banks, which almost at the outset of the war had suspended specie payment, responded with huge issues of bank notes; while State governments, corporations, and even private indi viduals added to the enormous volume of circulating tokens. It is impossible accurately to estimate the total volume of all forms of paper currency circulating in the South during this period, but there can be no question that the aggregate reached a fabulous figure. All of this circulation did little good, however, for the reason that notes of all sorts were made redeemable in Confederate treasury notes and consequently immediately reflected any depreciation in the value of the latter. The general complications were still further increased by the appearance of many counterfeits, so that in some sections of the South currency of all forms was done away with altogether and business was conducted on a basis of barter. CONFEDERATE FINANCES. Such conditions naturally gave rise to the wildest sort of speculation. Farmers, wearied of receiving payment in depreciated paper, ceased, to a great extent, producing crops, nor could the most rigid legislation alter their resolution. The resultant suffering to the army was incalculable. For the most part, the Confederate army was compelled to live on whatever it could get hold of in the course of its marches and campaigns. Naturally the final outcome of the war annulled whatever slight value might still attach to any of the Confederate bonds or notes. A great part of the accumulated wealth of the South, together with 123 much of its industrial and commercial capital, was sacrificed in the course of the fruitless struggle for secession. The set-back which agriculture received was also lamentably great. Despite the disaster which accompanied it at all points, however, the currency policy of the Confederacy should not be too severely criticised. In principle it was essentially the same as that adopted by the North during the during the same period. same period. It was the vastly greater resources of the latter which prevented the Federal Administration from resorting to such extreme measures as the Confederate government was forced to adopt.* CHAPTER VIII. 1861-1865. FEDERAL FOREIGN RELATIONS DURING THE WAR.† Skilful handling of the Union's foreign affairs during the Civil War - Seward's vigilance in preventing European intervention His rehabilitation of our consular service Hasty recognition by England, France, and Spain of Confederate belligerent rights Seward's remonstrances and warnings to England - Union grievances against Great Britain - The "Alabama claims "- English fears as to our designs on Canada - The policy of France - Seward's bearing toward Mexico, Central America, and other Spanish-American countries Russia's good services to the Union cause Other foreign relations. The United States in its most dangerous crisis was fortunate in having its foreign affairs under the efficient direction of William H. Seward, whose optimism and eternal vigilance held back the foreign influences that were so impatient to intervene. in the long contest. Persistently and vigorously declaring the right of the United States to manage its own VOL. VIII-9 domestic concerns, including that of independent action in suppressing insurrection within its own borders, Seward just as firmly opposed the *See William Lee, The Currency of the Confederate States of America (1875); J. C. Schwab, The Confederate States of America; Financial and Industrial History. Prepared for this History by J. M. Callahan, Professor of History and Political Science, University of West Virginia. |