Tag Archives: Economy

President Davis’s 1863 Message to Congress

January 12, 1863 – President Jefferson Davis submitted his message on the state of the Confederacy to the Confederate Congress as it assembled for its third session at Richmond.

By this time, inflation plagued the South, as the printing of paper money without backing by precious metals sent the cost of living skyrocketing. The Confederate military still held firm against the Federals, but resources were dwindling and there was little hope for foreign aid.

Confederate President Jefferson Davis | Image Credit: Wikipedia.org

Davis declared that the first two years of the new nation “affords ample cause for congratulation and demands the most fervent expression of our thankfulness to the Almighty Father, who has blessed our cause.” He cited recent Confederate military successes as “another example of the impossibility of subjugating a people determined to be free; and have demonstrated that no superiority of numbers or available resources can overcome the resistance offered by such valor in combat, such constancy under suffering, and such cheerful endurance of privation as have been conspicuously displayed by this people in the defense of their rights and liberties.”

Davis still held out hope that foreign nations would recognize Confederate independence, but he acknowledged that such an opportunity was quickly vanishing due to increased Federal aggression, both on land and at sea.

He denounced the Emancipation Proclamation:

“We may well leave it to the instincts of common humanity which a beneficent Creator has implanted in the breasts of our fellowmen of all countries to pass judgment on a measure by which several millions of human beings of an inferior race, peaceful and contented laborers in their sphere, are doomed to extermination, while at the same time they are encouraged to a general assassination of their masters by the insidious recommendation ‘to abstain from violence unless in necessary self-defense.’”

To Davis, the proclamation was “complete and crowning proof of the true nature of the designs of the (Republican) party which elevated to power the present occupant of the Presidential chair at Washington.” He cited President Abraham Lincoln’s inaugural address of March 1861 (in which Lincoln pledged not to interfere with slavery where it already existed) as evidence that the party had lied about its intentions all along.

Calling the proclamation “the most execrable measure in the history of guilty man,” Davis announced that he would turn over any commissioned Federal officers enforcing it to the appropriate state government for punishment as “criminals engaged in inciting servile insurrection.” In most southern states, that punishment was death.

Davis asserted that Lincoln’s decree proved his “inability to subjugate the South by force of arms,” and its appeal to morality provided foreign nations the “justification in withholding our just claims to formal recognition.” Ultimately, the proclamation meant that “restoration of the Union has been rendered forever impossible by the adoption of a measure which from its very nature neither admits of retraction nor can coexist with union.”

Regarding the Treasury Department, Davis asked members of Congress to approve legislation improving the Confederacy’s financial structure to pay down the national debt:

“Among the subjects to which your attention will be specially devoted during the present session you will no doubt deem the adoption of some comprehensive system of finance as being of paramount importance.”

Regarding the War Department, Davis requested “some revision of the exemption law (i.e., the amended Conscription Act) of last session. Serious complaints have reached me of the inequality of its operation,” and Davis recommended exempting enough men to form local police squads that would keep law and order at home while the rest of the men fought the war.

Davis also stated:

“I recommend to the Congress to devise a proper mode of relief to those of our citizens whose property has been destroyed by order of the Government, in pursuance of a policy adopted as a means of national defense. It is true that full indemnity cannot now be made, but some measure of relief is due to those patriotic citizens who have borne private loss for the public good, whose property in effect has been taken for public use, though not directly appropriated.”

Davis reminded Congress:

“Our Government, born of the spirit of freedom and of the equality and independence of the States, could not have survived a selfish or jealous disposition, making each only careful of its own interest or safety. The fate of the Confederacy, under the blessing of Divine Providence, depends upon the harmony, energy, and unity of the States.”

He concluded, “With hearts swelling with gratitude let us, then, join in returning thanks to God, and in beseeching the continuance of his protecting care over our cause and the restoration of peace with its manifold blessings to our beloved country.”

—–

References

CivilWarDailyGazette.com; Foote, Shelby, The Civil War: A Narrative: Volume 2: Fredericksburg to Meridian (Vintage Civil War Library, Knopf Doubleday Publishing Group, Kindle Edition, 2011), p. 165; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 253-54; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 311; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 565; Pollard, Edward A., Southern History of the War (New York: C.B. Richardson, 1866; revised version New York: The Fairfax Press, 1990), p. 576-77, 583; White, Howard Ray, Bloodstains, An Epic History of the Politics that Produced and Sustained the American Civil War and the Political Reconstruction that Followed (Southernbooks, Kindle Edition, 2012), Q163

The Legal Tender Act

February 25, 1862 – President Abraham Lincoln signed a bill into law establishing the first Federal paper currency in U.S. history–the “U.S. Note.”

Treasury Secretary Salmon P. Chase | Image Credit: Wikimedia.org

Treasury Secretary Salmon P. Chase | Image Credit: Wikimedia.org

By this time, the northern banking community was nearing collapse. Doubts about the Federals’ ability to win the war and a possible European recognition of Confederate independence had prompted panic buying of precious metals, resulting in a gold shortage. This shortage hindered Federal efforts to obtain loans or repay debts. In a message to Congress, Treasury Secretary Salmon P. Chase finally conceded: “I came with reluctance to the conclusion that the legal tender clause is a necessity. Immediate action is of great importance. The Treasury is nearly empty.”

The “legal tender clause” was a measure that would enable the U.S. Treasury to print paper money that was not backed by specie (i.e., precious metals such as gold or silver). Prior to this, all American currency had value based on its ability to be converted to specie. The printing of this new paper money would be financed by bond sales.

Chase called the issuance of paper money “indispensably necessary” as a means to increase the money supply and help pay for the war. Printing money out of thin air sparked intense debate in Congress, with most Democrats opposing and most Republicans favoring the move. Republican William P. Fessenden of Maine, chairman of the Senate Finance Committee, acknowledged that it was “of doubtful constitutionality… It is bad faith… It shocks all my notions of political, moral, and national honor…” however, “to leave the government without resources in such a crisis is not to be thought of.”

Republican Congressman Elbridge C. Spaulding of New York, a member of the House Ways and Means Committee and chairman of a sub-committee working on wartime emergency measures, proposed printing $150 million in paper money. This would pay for all debts except import tariffs and interest on the national debt. Spaulding declared:

“The bill before us is a war measure, a necessary means of carrying into execution the power granted in the Constitution ‘to raise and support armies’… These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government and preserve our nationality.”

Democratic Congressman George Pendleton of Ohio countered:

“The wit of man has never discovered a means by which paper currency can be kept at par value, except by its speedy, cheap, certain convertibility into gold and silver… prices will be inflated… incomes will depreciate; the savings of the poor will vanish; the hoardings of the widow will melt away; bonds, mortgages, and notes–everything of fixed value–will lose their value.”

A banker argued that “gold and silver are the only true measure of value. These metals were prepared by the Almighty for this very purpose.” Constitutionalists asserted that Congress only had the power to “coin” money, which meant create coin, not money based on worthless paper. Moreover, allowing for the payment of debts with this paper violated the Constitution’s contracts clause.

Republican Congressman Samuel Hooper of Massachusetts contended, “Every intelligent man knows that coined money is not the currency of the country,” because state banknotes were the prime medium of exchange, and they often depreciated in value. Hooper stated that the real question was whether national paper money would have “as much virtue… as the notes of banks which have suspended specie payments.”

Lawmakers added a provision authorizing payment of bond interest in specie, up to six percent. It was hoped that this would encourage more bond sales, which would finance the new currency. Tariffs would also continue to be paid in specie to finance interest payments on the bonds.

The Republican-dominated Congress, influenced by increasing pressure from the Treasury, business leaders, and bankers, ultimately cast the votes needed to approve the bill. Three-fourths of congressional Democrats opposed the measure, but their minority status could not overcome the three-fourths of Republicans in favor. Lincoln, admittedly no expert in finance, signed the measure into law.

The Legal Tender Act created the first national monetary system based on paper, or fiat, currency. The new currency, which featured the image of Treasury Secretary Chase, was called “greenbacks” due to the green ink used to print the notes. Issuing paper money in place of specie was intended as a wartime emergency measure only. Attorney General Edward Bates wrote a legal opinion arguing the law’s validity because it fell under the Constitution’s “necessary and proper” clause. Ironically, Chase himself would later rule this measure unconstitutional as Supreme Court chief justice after the war.

The first $150 million in notes were to begin issuance in April; ultimately $400 million was circulated. The paper money helped restore enough investor confidence to sell the $500 million in six-percent bonds issued at the same time. It also provided access to the funds that had been hoarded since the financial crisis of December. Paper money circulation ended when specie currency was finally restored in 1879.

—–

References

Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 134; Donald, David Herbert, Lincoln (Simon & Schuster, Kindle Edition, 2011), Loc 7452; Faust, Patricia L., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 323; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 114; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 58-59; Linedecker, Clifford L. (ed.), The Civil War A to Z (Ballantine Books, 2002), p. 164; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 175; Longacre, Edward G., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 432-33; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 444-46

The Official Inauguration of Jefferson Davis

February 22, 1862 – Jefferson Davis took the oath of office to become the first official president of the Confederacy.

Confederate President Jefferson Davis | Image Credit: Wikipedia.org

Confederate President Jefferson Davis | Image Credit: Wikipedia.org

Davis and Vice President Alexander H. Stephens had been elected to their posts by delegates of the Montgomery convention the previous February on a provisional basis only, pending a general election. That general election had officially elected Davis and Stephens as Confederate president and vice president in November. Under the Confederate Constitution, they were to serve one six-year term and were ineligible for reelection.

Confederate officials selected February 22, George Washington’s Birthday, as the presidential inauguration day at the Confederate capital of Richmond, Virginia. Thousands of people attended the ceremonies, which began in the Virginia Hall of Delegates and then moved outside to a canopied platform beside the statue of Washington in the Capitol Square. Davis was escorted to the platform by his black footmen; they all wore black because, as one of them said, “This… is the way we always does in Richmond at funerals and sichlike.”

On the platform, Davis took the chief executive’s oath, kissed the Bible, and delivered his inaugural address. He declared: “Whatever of hope some may have entertained that a returning sense of justice would remove the danger with which our rights were threatened, and render it possible to preserve the Union of the Constitution, must have been dispelled by the malignity and barbarity of the Northern States in the prosecution of the existing war.” He cited as evidence:

“Bastilles filled with prisoners, arrested without civil process or indictment duly found; the writ of habeas corpus suspended by Executive mandate; a State Legislature controlled by the imprisonment of members whose avowed principles suggested to the Federal Executive that there might be another added to the list of seceded States; elections held under threats of a military power; civil officers, peaceful citizens, and gentle-women incarcerated for opinion’s sake–proclaimed the incapacity of our late associates to administer a Government as free, liberal, and humane as that established for our common use.”

Davis contrasted these Federal actions to those of his administration, stating that “through all the necessities of an unequal struggle there has been no act on our part to impair personal liberty or the freedom of speech, of thought, or of the press.”

Noting the financial troubles in the North, Davis predicted a Federal economic collapse: “The period is near at hand when our foes must sink under the immense load of debt which they have incurred, a debt which in their effort to subjugate us has already attained such fearful dimensions as will subject them to burdens which must continue to oppress them for generations to come.”

Davis expressed his view that the war was a test of what the southern people were willing to endure to defend their freedom: “It was, perhaps, in the ordination of Providence that we were to be taught the value of our liberties by the price which we pay for them.”

Trying to turn a negative into a positive, Davis cited unexpected benefits from European powers adhering to the Federal blockade:

“If the acquiescence of foreign nations in a pretended blockade has deprived us of our commerce with them, it is fast making us a self-supporting and an independent people. The blockade, if effectual and permanent, could only serve to divert our industry from the production of articles for export and employ it in supplying the commodities for domestic use.”

However, he also acknowledged the recent defeats in the Western Theater and North Carolina:

“After a series of successes and victories, which covered our arms with glory, we have recently met with serious disasters. But in the heart of a people resolved to be free these disasters tend but to stimulate to increased resistance. To show ourselves worthy of the inheritance bequeathed to us by the patriots of the Revolution, we must emulate that heroic devotion which made reverse to them but the crucible in which their patriotism was refined.”

Davis concluded:

“With humble gratitude and adoration, acknowledging the Providence which has so visibly protected the Confederacy during its brief but eventful career, to thee, O God, I trustingly commit myself, and prayerfully invoke thy blessing on my country and its cause.”

—–

References

Foote, Shelby, The Civil War, A Narrative: Fort Sumter to Perryville (New York: Vintage Books, 1958), p. 217-18; Fredriksen, John C., Civil War Almanac (New York: Checkmark Books, 2007), p. 113; Linedecker, Clifford L. (ed.), The Civil War A to Z (Ballantine Books, 2002), p. 84-85; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 174; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 402-03, 433; Pollard, Edward A., Southern History of the War (New York: The Fairfax Press, 1990), p. 265-67; White, Howard Ray, Bloodstains, An Epic History of the Politics that Produced and Sustained the American Civil War and the Political Reconstruction that Followed (Southernbooks, Kindle Edition, 2012), Q162

The Northern Financial Crisis

December 30, 1861 – The leading banks of New York, Boston, and Philadelphia suspended specie payments (i.e., exchanging paper money for gold or silver) due to depleted reserves. This suspension thrust the northern states into a financial crisis.

Wall Street, New York, circa 1850s | Image Credit: Wikimedia.org

Wall Street, New York, circa 1850s | Image Credit: Wikimedia.org

By year’s end, the Federal government was struggling to find ways to pay for the war. Chase had estimated that it would cost $320 million to win the conflict, but only $80 million was obtained through taxation. The rest had to come from import tariffs, public land sales, and the sale of government bonds. The first two did not raise nearly enough to meet the need, and banks were reluctant to buy bonds if they had to pay for them in specie.

The Federal supply of gold and silver had been rapidly dwindling since the war began because the government was required to pay its soaring debts to war contractors in specie. In addition, people concerned about the dwindling supply began hoarding their precious metals, adding to the shortfall.

An economic downturn ensued, made worse by the loss of southern markets. Nearly 6,000 businesses failed this year, and an article in the New York Tribune stated, “Never before perhaps in the history of this country has such a feeling of uncertainty, of alternate hope and fear, prevailed in the business community.”

Federal defeats earlier this year, along with General-in-Chief George B. McClellan’s seeming reluctance to invade the Confederacy, had also shaken public confidence in financial stability. And when news of the Trent affair reached the U.S. on December 16, a panic occurred among the exchanges. New York banks experienced a run during which $17 million was withdrawn in three weeks. All of this threatened to deflate the value of paper money.

After the New York banks voted 25 to 15 to suspend specie payments, banks throughout the North followed suit, except those in Ohio, Kentucky, and Indiana. In all but those three states, people could only pay their debts by check or paper money (i.e., treasury or bank notes). This made it extremely difficult for the Federal government to pay its skyrocketing number of contractors, employees, and soldiers. This in turn made it difficult to obtain loans to continue paying for the war.

The suspension meant that new financial measures needed to be enacted. In his annual report to Congress, Treasury Secretary Salmon P. Chase proposed creating a national bank system in which banks would receive membership by buying government bonds. The bonds would then be used to back the issuance of a new form of paper money. Congressional debate on this proposal continued into the next year.

—–

References

Denney, Robert E., The Civil War Years: A Day-by-Day Chronicle (New York: Gramercy Books, 1992 [1998 edition]), p. 104; Jackson, Donald Dale, Twenty Million Yankees: The Northern Home Front (Alexandria, VA: Time-Life Books, 1983), p. 56-58; Long, E.B. with Long, Barbara, The Civil War Day by Day (New York: Da Capo Press, Inc., 1971), p. 152; Longacre, Edward G., Historical Times Illustrated Encyclopedia of the Civil War (New York: Harper & Row, 1986, Patricia L. Faust ed.), p. 432-33; McPherson, James M., Battle Cry of Freedom: The Civil War Era (Oxford History of the United States Book 6, Oxford University Press, Kindle Edition, 1988), p. 444; Schweikart, Larry and Allen, Michael, A Patriot’s History of the United States (New York: Penguin Books, 2004), p. 324