“The progressivity of the Union approach contrasted with the utter backwardness of the South.”
Part One of a conversation with Roger Lowenstein, author of “Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War”
Roger Lowenstein is the author of numerous books, including the New York Times bestsellers Buffett, When Genius Failed, and The End of Wall Street. We are also cousins (or, technically, first cousins once removed, or something like that).
Today most people think of the U.S. Civil War as being won on the battlefield, but in Roger’s new book, Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War, he makes a convincing case that the economic and financial aspects of the conflict were just as significant in determining both the outcome of the war and the shape of the nation that followed.1
When Roger and I spoke earlier this week, I wanted to dive into one particular aspect of the book. In early 1863, the trajectory of the Civil War looked bleak for the North. At the time, “Ulysses S. Grant’s attack on Vicksburg was literally stuck in the mud,” as Roger puts it, and “prominent northern Democrats began to call on the British to intervene and mediate a peace.” Meanwhile, in Chancellorsville, “Robert E. Lee dealt the Union army a disastrous loss despite being outmanned more than two to one.” After that defeat, Charles Sumner, the abolitionist senator from Massachusetts, “bewailed” to the Secretary of the Navy, “Lost, lost, all is lost.”
Sumner’s despair reflected the conventional wisdom then, at least among Northerners, and it largely remains the conventional wisdom today. But sometimes there’s a divergence between how events are seen and understood—the stories we tell and the narratives we accept as complete and true—and how they really are (or were).
Here’s the first part of my conversation with Roger. You can read the second part here. The excerpts below have been condensed significantly and edited for clarity.
ADAM: I’ll ask you to start by doing something you’ve probably done at least a thousand times by this point, which is to tell us about Ways and Means and the core argument that you make in the book.
ROGER: The North and South weren’t just divided by slavery. Slavery was the most visible difference of two civilizations that were unlike in virtually every respect, particularly economically. One was forward looking, industrializing, developing. It had more equal dispersion of wealth [and] educational levels; in particular, it had far greater individual mobility.
None of this came about by accident. It was because people like Lincoln and Thaddeus Stevens and John Sherman and other leaders of the Republicans—this had been their ethos going back to the 1830s and 40s and 50s. They wanted to use the federal government to build a society that would promote prosperity for those [at] the bottom, as they had all been. The Republicans were not powdered wigs like the Founders of the revolutionary age.
The [South] was really an odd, backward-looking society. It sought to just preserve the wealth that was exceptionally concentrated. They did not want the federal government to grow. They feared its effect on slavery, [but] they also feared its effect on raising expectations of poor whites that made up the great bulk of their population. They didn’t believe in dispersing education more commonly, or using the government to build roads and canals, or homestead acts and things like that. These were things that had been debated for years before the war and were stopped or vetoed by succession of a Democratic presidents. These weren’t new ideas; they just didn’t get traction when the government was divided or controlled by Southerners and Democrats.
Joseph Brown, the governor of Georgia at the time of secession, said, “The poor man’s best Government” is slavery, which is a remarkable comment. The “poor man’s government” isn’t giving you roads. It’s not giving you a Morrill Land Grant College Act.2 It’s not creating a workable currency. It’s slavery, meaning, We’ll make sure you’re one rung above the poor, miserable people who are actually enslaved. That’s what government will give you, and nothing more.
There just couldn’t be a greater contrast between that view and the view that Lincoln articulated throughout his career, in particular on July 4, 1861, his first address to the Congress, when he called a special session to raise money and men for the war. He took a moment to remind the Union why they were fighting. He said the leading object of government is “to elevate the condition of men.” And that was not the leading object for Jefferson Davis. It was not the object at all.
The final point is that the differences [between the North and South] were not only so telling in the nature of the societies, but they were dispositive in who won the war. The progressivity and modernity of the Union approach contrasted with the utter backwardness of the Southern approach. [There is a] comment towards the end of the book where a Southerner says, “The Yankees did not whip us in the field. We were whipped in the Treasury department.”3 It really determined the outcome of the war as much as the generals or the Union’s numerical strength in troops.
ADAM: One of the main arguments of the book is that the Civil War was not won or lost based solely on—and here I’ll employ a phrase that Politico might have used if it had existed in the 1860s—who was “up” and who was “down” on the battlefield. You write, “Only from one perspective did the war seem not only not lost but, in fact, already won.” How was the war already won for the Union at that point?
ROGER: Let’s take a look at where the Union was in early 1863. Both sides began the war with tremendous financial challenges. In the very beginning Salmon Chase, the unfortunately named Secretary of the Treasury—he was always very embarrassed by that first name—he goes to the banks to borrow money. That was how we’d always fought wars.
Banks weren’t huge institutions with thousands or hundreds of thousands of shareholders, as in our day. When you borrowed from a bank, you were borrowing from the bank president and a small circle of his partners who might have invested with him, so the bankers thought really hard before they made you a big loan. But the wars before had generally been short or relatively inexpensive. No one thought the Civil War would go on for long.
And he [Chase] went to the leading banks in the east in Boston and Philadelphia and, of course, New York, and he asked them to lend him gold. They didn’t want to lend gold—they preferred to lend their notes—[but] Chase insisted, and, with much prying and pulling and tugging, he got them to lend $50 million in gold coin. They had a celebratory dinner, and the leading banker stood up and said, Mr. Secretary, we’ve lent you the august sum of $50 million in coin. We think that should be quite enough to fight your war. Don’t come back. Before the war was over, the Union would spend that 60 times over.
By early 1863, [Chase] had basically solved the problem. What had he done? First, he created the greenback—fiat money of the type we’d never had. Paper that was money. Not only had he created it, but it was accepted. It was accepted throughout the North, and much to the chagrin of Jefferson Davis, it was increasingly accepted in the South.
The Union had backed that currency up, most importantly, with a tax system. And this is what we’d never had before. The United States had only relied for funds on a tariff, but trade was still quite depressed because of the war, [so] it wasn’t enough. Congress, at Chase’s prodding, created a vigorous taxing system under the auspices of the newly created Internal Revenue Bureau, forerunner of the bureau we all love today, the Internal Revenue Service. This new tax system taxed every industry you could name and created a progressive income tax—a completely new idea. The Union wasn’t backed by just paper. It was backed by the productive strength of the Northern people.
That enabled the third leg of their financing scheme, which was to send an investment banker, hired and commissioned by Chase, to sell Union bonds. Now we think nothing of that. Many people have heard of Liberty Bonds in World War I [and] their equivalent in World War II.
But it all started—in scale, anyway—in the Civil War. Because the Union had this tax base, and people trusted [that] there was something behind these bond campaigns, [they] raised billions of dollars. For that era, when the federal budget previous to the war had been something like $70 million or so a year, to raise a billion dollars in a single bond campaign was just an unheard-of sum. [These] bond campaigns were just getting off the ground in force in early 1863.
Thanks to all those [actions], Chase was able to legislate what had been his dream: a national banking system, which created for the first time not individual banks, each one chartered by its own state with different rules and regulations and levels of security or insecurity, but one banking system—chartered by the federal government and responding to regulations drawn up in Washington—[with] each [bank] issuing the same currency.
The national banking currency was intended to be a permanent currency, so this last layer was not only for war finance—it set the stage for a modern financial system to survive the war. [It was] really quite a financial architecture, which the North cobbled together in the midst of fighting this horrible, all-consuming war.
This is the first of a two-part interview. Read the second part here.
To see more of Roger’s work, subscribe to his newsletter, Intrinsic Value, or visit rogerlowenstein.com. You can (and should!) get your copy of Ways and Means wherever books are sold.
https://www.wsj.com/articles/how-paper-money-saved-the-union-11646409490
https://www.britannica.com/topic/Land-Grant-College-Act-of-1862
https://www.wsj.com/articles/ways-and-means-review-financing-the-civil-war-11646090288