Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War, by Roger Lowenstein, Penguin Press, 448 pages, $30
With Ways and Means, Roger Lowenstein, the author of several popular books on finance, tackled the Civil War. The subtitle of the book—Lincoln and his cabinet and the financing of the Civil War– is deceptively incomplete, as Lowenstein covers much more than EU funding. It aims to demonstrate how Republicans “greatly expanded government.” It not only describes the expansion of state power through war across many dimensions; he celebrates this result as “an agenda for industry and growth, and for fostering opportunity, especially for those at the bottom of the ladder”.
Lowenstein is an engaging and readable author, and he consulted a wide range of primary sources and secondary literature. But he goes too far when he claims that this Republican “revolution” has been “largely ignored”. Oh good? Certainly not among historians. Lowenstein’s footnotes even quote certain works going in the same direction, in particular that of Richard Franklin Bensel Yankee Leviathan (1990) and James M. McPherson battle cry of freedom (1988). Among the myriad other stories that have done the same is that of Richard White The Republic she represents (2017), by Steven Hahn A nation without borders (2016), and mine Emancipate slaves, enslave free men (1996). And certainly many non-historians who have read extensively about the Civil War are aware of its impact on central government powers.
As Lowenstein unveils the government interventions that brought about what he calls a “staggering transformation”, he delves into their political origins as deeply as their economic characteristics. This allows it to highlight the role of Abraham Lincoln more than most surveys do. Lincoln had been a member of the Whig party, which traditionally looked down on presidential intrusion into the realm of Congress. But Lowenstein credits Lincoln with working behind the scenes to promote the legislation that emerged during his presidency.
What did this law do? Before the war, the only sources of federal revenue were a low tariff and the sale of public lands. By the end of the war, average tariffs had risen to 47%, decisively shifting the economy from free trade to protectionism. A wide range of internal taxes, including a progressive income tax, were imposed by a new tax bureaucracy.
Western lands were opened up to farm and granted to promote a transcontinental railroad. Additional land grants to states to endow colleges constituted the first federal aid to education. A Department of Agriculture was created to help farmers, and immigration was subsidized for employers. Congress also created the National Academy of Sciences to promote technological innovation, and it created new agencies such as the Government Printing Office and the Bureau of Engraving and Printing. (The Homestead Act is arguably better viewed as a form of privatization than an extension of governmental power, but Lowenstein is not alone in placing it under the latter heading.)
The increase in government borrowing resulted, by Lowenstein’s count, in the issue of “thirty-two varieties of notes, bonds, and other instruments.” One of the reasons for this range, which is not explicitly mentioned in the book, is that it was not until after the First World War that the Treasury obtained its present discretionary power to issue any debt necessary to cover expenses. Previously, virtually every new government loan required a separate law, debatable in Congress. Lincoln’s first treasury secretary, Salmon P. Chase, who had a sometimes rocky relationship with the president, figures prominently in Means and methods.
Some of these loans could be quite complex, and Lowenstein should simplify things for readers unfamiliar with finance. Just to give an example, bonds issued in 1862, known as Five-Twenties, paid an annual interest of 6% semi-annually. They had a fixed maturity of 20 years, during which their market price could fluctuate, but could be unilaterally redeemed at face value by the government after five years. In technical terms, it was a 20-year loan with an embedded call option after five years.
Before the war, the US government generally had surpluses and the national debt stood at a miniscule $65 million (or about $2 billion in 2022 dollars). By the end of the war, the debt had risen to $1.3 billion, the interest alone constituting, as Lowenstein notes, “more than the entire pre-war budget.” Yet this was not enough to cover the cost of the war. So Chase, previously a hard-money Democrat, reluctantly resorted to fiat currency – greenbacks – generating inflation that eventually raised the price level by almost 80%. Lowenstein considers this “almost all bad” and laments post-war efforts to reestablish a gold standard.
Similar predilections are apparent in Lowenstein’s discussion of another Chase initiative, the National Banking System, which did not materialize until after Chase resigned as Secretary of the Treasury. Lowenstein unfairly calls the pre-war monetary system “chaotic”, ignoring the abundant research that finds pre-war “free banking”, while far from perfect, to have been at least as useful as most subsequent US monetary regimes. Moreover, Lowenstein’s praise of the national bank hardly squares with his description, in his book on the Federal Reserve, of the national banking system as in the throes of panics. Towards the end of Means and methods, he even backtracks slightly, admitting that the new system gave Wall Street too much dominance. But he never realizes that the two most serious flaws were almost identical for pre-war and post-war banks: legal limits on bank branches and requirements for banks to hold bonds. State (issued by the State before the war and issued by the Treasury afterwards).
Lowenstein is also inconsistent in his assessment of the government-subsidized transcontinental railroads. If he describes them as “dazzling success”, he concedes that they have been “a tempting vector of corruption”, manifested in the Crédit Mobilier scandal. Yet he is blind to the fact that government subsidies have made corruption almost inevitable. Nor does he seem aware of the extent to which transcontinentals were built ahead of demand, contributing to shoddy construction, bankruptcies, premature settlements, over-expansion of agriculture, subsequent agricultural economic distress, and environmental damage.
Lowenstein also deals, albeit less extensively, with the parallel expansion of government within the Confederacy. His story really shines when he describes how Confederate hyperinflation affected the people of the South, who by the end of the war were on the brink of starvation. He also points to a factor that is usually not mentioned: the Confederacy’s constant loss of territory and population has worsened inflation.
Lowenstein misses a crucial aspect of Confederate mobilization when he asserts that the South was “too late to build factories.” In reality, the wartime economy of the South underwent forced industrialization through government-owned facilities. General Josiah Gorgas, chief of Confederate ordnance, could boast in his diary that “great arsenals have been organized at Richmond, Augusta, Charleston, Columbus, Macon, Atlanta, and Selma,” as well as gunpowder mills, foundries of cannons, guns and pistols. factories, etc “Where three years ago we didn’t make rifles, pistols or sabers,” he concluded, “we now make all of that.”
The book is notable for its lengthy treatment of the cotton trade, particularly the trade between the lines. To my knowledge, no mainstream narrative has paid so much attention to this topic. Allowing the purchase of cotton from the South was a source of tension within the Union leadership. Lincoln and Chase lobbied for a limited and regulated opening of this trade through licensed dealers, in the hope that increased cotton exports would bring more gold into the northern economy. But military leaders such as Ulysses S. Grant and William Tecumseh Sherman were adamantly opposed to—and sometimes thwarted—the administration’s efforts, believing that the cotton trade would help the South prolong the war. In all cases, illicit trade persisted and was often facilitated by corruption.
Lowenstein rightly points out that Lincoln went to war to preserve the Union and that the end of slavery was an initially unintended consequence. It also provides a good summary of the effort, within Chase’s purview, to grant land to former slaves, with limited success, in the South Carolina Sea Islands, which were early occupied by the Union Army. Because he otherwise pays little attention to military events except when they impinge on finances, his treatment of these is limited and sometimes simplistic.
Lowenstein moved beyond opinions about the alleged inefficiency of the pre-war Southern slave economy and endorsed the long-discredited Beard-Hacker thesis that the Civil War fostered later economic growth and industrialization, its version of the thesis emphasizing government activism. In fact, the United States had already experienced healthy and sustained growth for three decades before the war. Additionally, some of the new policies that Lowenstein admires contributed to postwar poverty in the South, particularly the national banking system, which strangled sources of credit in that region.
In short, Means and methods is a good introduction to the politics of Civil War finance, exposing facets not usually covered in popular works. But the author’s interventionist bias often misleads his economic conclusions.
This article originally appeared under the title “How to pay for a civil war”.