My Amazon Review of Roger Lowenstein's : "Ways and Means: Lincoln..."

 

The Sinews of War

 

Former Wall Street Journal reporter Roger Lowenstein proves the old wag that the South lost the Civil War because it used Confederate money. Governments are financed by three ways; taxation, borrowing, and printing money. The North funded the Civil War, by and large, through taxation and borrowing. To be sure the North printed up Greenbacks, but nowhere to the extent money printing was used in the South. By the end of the war, prices in the Confederacy had risen by an astounding 9,000%.

 

The problem the South faced is that it did not have the economy to sustain a long war, while the North’s economic advantages increased as the war progressed. The two real heroes in Lowenstein’s book are Secretary of the Treasury Salmon P. Chase and Philadelphia financier Jay Cooke. Chase a strong abolitionist and in many ways a Jeffersonian Democrat, realized that he could not finance the war by money printing alone and he developed a series of long-term bond issues that were ultimately repayable in gold. He also instituted a progressive income tax, and the Congress raised the tariff to nearly extortionate rates. The tariff was paid in gold, not greenbacks.

 

Later in the war Chase gets Congress to pass the National Banking Act which for the first time creates national bank charters. Previously banks were only chartered by the states. A key feature of the new national banks was that part of their reserves had to be held in U.S. government bonds, thereby creating a natural market to help finance the war.

 

He created a national currency with the Legal Tender Act in 1861, which enabled the issuance of greenbacks. They were accepted. In the South there was no national currency, and it was largely issued by local banks. I learned that a popular currency was issued by a Louisiana bank and its $10 bill was called a Dix. It was widely circulated and henceforth the South was to be called Dixie.

 

His second hero was the scheming financier Jay Cooke who can rightly be considered one of the founders of modern Wall Street. He set up an organization to sell Chase’s bonds to the American public far and wide. He used correspondent banks to help sell the bonds and his company became the first wire house on Wall Street. Cooke’s company would fail in 1873 after the collapse of the Northern Pacific Railway.

 

Lowenstein rightly calls the 37^th Congress the most successful in history. That Congress in 1862 passes the Pacific Railway Act, the Morrill Act establishing land grant colleges and the Homestead Act. All three acts represented nation building at its best.

 

A significant result of the Civil War is that it jump-started the industrialization of America. The Great Lakes cities of Buffalo, Cleveland and Milwaukee thrived during the war. Great fortunes were made, and that capital formed the basis of the industrial behemoth the U.S. was to become and the Gilded Age that was part and parcel with it.

 

I was pleased to see that Lowenstein cited Eugene Lerner, my finance professor at Baruch College from many years ago, at length. Lerner was an expert on the financing of the Confederacy. To sum up Lowenstein tells the story of Civil War finance with great verve, and he holds the reader’s interest throughout.

For the full Amazon URL see: The Sinews of War (amazon.com)