forty thousand millions of francs.* These were followed by a second species
of paper money called Mandates^ to the amoimt of twenty-four hundred mil-
lions of francs. The great bulk of both these forms of circulation, amount-
ing in the aggregate to more than forty-two thousand millions of francs, or
eighty-five hundred millions of dollars, proved a loss to their holders ; a
circumstance which is thought to have been fortunate for France rather
than otherwise, in proving the means of divesting her, at the same time
with the burden itself, of the spurious authorities that had imposed it.

The British debt was contracted almost altogether in the form of bonds
at long dates, upon the faith of Avhich the Bank of England put forth a
projDortionate amount of its own notes of circulation. It is true that the
Exchequer bills issued by government for temporary purposes, went direct-
ly into the hands of the public ; but they also soon found their way, for
the most part, into the Bank of England ; and constituted, like the bonds,
a basis of additional circulation. In this respect, it will be observed, the
English and French systems were essentially difi'erent. In England the
circulation was not identical with the debentures of government, but was
issued through the agency of a banking company, which made of the gov-
ernment bonds a basis for the security of the circulation. In France, the
government itself put forth its obligations in the form of a currency, de-
clared it to be the medium of exchange by law, and denounced heavy penal-
ties against the refusal to accept it as money. The comparative merits of
the two systems were strikingly exemplified by the result. The French
issues, as we have seen, went on augmenting in volume until they reached



• The statement seems incredible ; but it is made on the authority of the American Encyd>
fedia.

27



iI5 THE LOST CAUSE.

forty-two thousand millions of francs (in the aggregate of Asslgnats and
Mandates)^ and continued to decline in value until the whole mass of cir-
culation became utterly valueless. The volume of currency in England,
on the other hand, never reached an unmanao-eable ajracreffate. The
circulating notes of the Bank of England never aggregated quite thirty
millions of pounds sterling, or one hundred and fifty millions of dollars
Kor did the pound sterling, in proper form, ever experience a depreciation
comparable with that which has generally attended the excessive issue of
paper currency, during a state of war, in other countries ; for the pound
sterling note of England reached its maximum depreciation in 1814, when
it sank to the value of £5 10s. to the ounce, or about 1.55 to the unit in
gold. We shall see that in the United States, during the war, the green-
back dollar sank to the value of 2.85 for one in gold ; and that the Con-
federate paper dollar sank at the end, to the low value of 60 for one.

During the protracted wars which the Russian Empire prosecuted for a
long series of years upon its Circassian frontier, a large employment of
credit was found to be requisite. An expedient similar to that employed by
Great Britain was resorted to, in the establishment of an institution called
the Bank of Assignats. This establishment furnished the proper currency
of the Empire for many years, and its circulation is believed never to have
exceeded in periods of the most pressing military exigency more than eight
hundred and thirty-six millions of roubles. A most remarkable circum-
stance connected with the history of this circulation is, that it underwent
a most excessive appreciation, above gold in value, during the winter of
Napoleon's Russian campaign, rising in value as the invader approached
the heart of the country, and receding as he retired.

Unfortunately for themselves, neither of the two belligerents in Amer-
ica took any measures for establishing a proper relation between the efflux
and reflux of the currency, during the gigantic war which we have under
consideration. If a Bank of Exchequer had been established at the begin-
ning, endowed with functions like those exercised by the Bank of England
during the first two decades of the present century, having entire control
of the circulation, and acting as the principal factor of the government in
the negotiation of its bonds, the evils of a ruinously depreciated cm-rency
might have been avoided. As it was, each new demand of the govern-
ment for money, instead of being supplied by the sale of bonds, and the
receipt of a part of the circulation already outstanding, was met by a new
and additional issue of notes ; those previously issued still remaining, for
the most part not needed and not employed, in the hands of the public.
There was thus a perpetnal efflux of notes of circulation ; and no returning
influx, to keep up an active demand for them and to sustain their value.
The pul)lic credit was made the prey of a multitude of sharpers and
brokers, who could all have been kept in due subordination by a great bank-



FINANCIAL CONDITION OF THE NORTH AND SOUTH. 419

ing corporation, having a capital of Inmdreds of millions of dollars, able
to " place " the public bonds as rapidly as funds were needed ; and, by
means of large discounts, establishing a steady reflux current of circulation
back into its own coffers. It is one of the plainest maxims of finance that
if a currency be issued in a continuous stream, without any measure being
taken to establish a counter-current of the same circulation back into the
source from which it issued, depreciation is inevitable. Where a circula-
tion is put forth through the agency of a bank, it is done in the process
of discounting the negotiable paper of punctual men of business ; and the
reflux is created by the return of the same amount of circulation into the
bank in payment of the discounted paper when it falls due. Every piece
of paper that is discounted, has its pay-day ; and the reflux of currency
corresponds with the efllux. The bank may fail ; but this efflux is not
relaxed by that fact alone ; for the necessity of paying the negotiable pa])er
which it lield undqr discount, will absorb precisely the amount of circula-
tion which was issued in the act of discounting it. A powerful bank of
exchequer, however unnecessary or vicious a part of our Federal machinery
it may be in periods of peace, is an admirable agency in time of war for
regulating the heavy circulation which is always found to be one of the
necessary attendants of a state of warfare.

ISTeither of the two belligerent governments in the American war took
the proper pains, if they took any pains at all, to ensure a healthful reflux
current into the Treasury of the circulation which they so profusely issued.
The outgo of circulation was enormous and continuous ; ^^■hile there was
no income at all, or if there was any, none sufficient to create any sensible
demand for the currency, or to impart any stable value to it.

Let us see briefly, for purposes of illustration, what was the financial
condition of the two belligerents at the close of the war. The aggregate
debt incurred by the Federal government, in the progress of the war, has
been officially stated, in frequent monthly bulletins from the Treasury
Department, at about two thousand eight hundred millions of dollars. It
is the generally received opinion in financial and official circles that the
debt, when all audited and settled, will reach the round sum of three
thousand millions of dollars. There was outstanding in the United States
in the form of currency issued from the Federal Treasury, on the 31st of
July, 1865, the aggregate sum of seven hundred and eleven millions of
dollars ; composed of five per cent, notes, six per cent, compound interest
notes, greenbacks not bearing interest, and fractional currency. Up to
that date, the circulation of the National Banks had reached one hundicd
and fifty seven millions, and the supposed amount of the notes of State
banks still in circulation, was about eighty millions. The aggregatq cir-
culation in the Northern States, therefore, had reached, at the end of the
war, the prodigious amount of about nine hundred and fifty millions of



120 THE LOST CArSE.

dollars. Tlie circulation of the Bank of England, we have seen, did not
exceed, at the end of the Napoleonic wars, one Imndred and fifty millions
of dollars, which is not one-sixth of the amount of the circulation which
the war left in the North. The price of gold in New York, compared with
greenbacks, for several months after the close of the war fluctuated near
the point of one for one and forty-five hundredths ; while the maximun?
depreciation of paper, during the war, was two and eighty-five hundredths.
Tlie maximum depreciation of the pound sterling note in England was one
and fifty-five hundredths.

The total cost of the war to the Confederate government had reached
at its close, according to the opinion of intelligent officers of the Treasury,
about thirty-five hundred millions of dollars. Of this total about twenty-
five hundred millions consisted of eight, seven, six, and four per cent,
bonds of long dates ; of Treasury notes outstanding of both the old and
new issue ; of unsettled accounts due from government, audited or in the
process of being audited in the accounting departments ; and of debt that
had been cancelled in the form of the old currency, and income received in
the form of taxes. The residue of the expenditure remained in the form
of unpaid claims against Government in the hands of the people, for prop-
erty purchased or impressed and damages sustained from the army.
In fact, the cost of the war on the Confederate side, measured in Confed-
erate currency, was nearly the same as that on the Federal side ; for it
is to be observed that the three thousand millions of dollars at which the
Federal debt is generally estimated, embraces only the Federal debt prop-
er ; and does not embrace the expenditures made by States, cities, counties,
and corporations generally. An intelligent authority classifies the war
debt of the North as follows : Federal debt, three thousand millions ;
State debt one hundred and thirty-five millons ; city debt, one hundred
millions ; and county debt five hundred millions ; making a grand aggre-
gate of about three thousand seven hundred and fifty millions of dollars.
The municipal indebtedness of the South, incurred on account of the war,
was very inconsiderable. The complete disorganization which attended the
disastrous termination of the struggle renders it impossible to amve at an
exact knowledge as yet either of the Confederate debt or of the municipal
debt ; but the latter was comparatively so inconsiderable as to constitute
scarcely an appreciable element in the grand total of the Confed'^rate
finances. The system of bounties was wholly unknown at the Sonth ;
a patriotic public opinion and an energetic conscription sufficing to force
every man of self-respect into the army, or into some branch of the public
service. The bounty system, with its frauds and corruptions, was a feature
of the war known only to the North.

"We come now to speak more exclusively of the course of finance in the
Southern States. Early in the winter of the first year of the war, and



FINANCIAL MEASUEES OF THE CONFEDEKACT. 42 J

rather earlier than was supposed to be necessary, the banks of the South-
ern States suspended specie payments. Tlie specie in their vaults at the
time, as shown by their published reports, was about thirty millions of
dollars in the total, and the paper circulation outstanding, in the form of
bank notes, was about fifty millions. An estimate of the quantity of
specie at the time in circulation among the people of the South must be
conjectural ; but the weight of intelligent opinion is in favour of the con-
clusion that this amount did not exceed twenty millions of dollars. Thus
the war found the South in possession of only about fifty millions of coin,
and with a paper circulation afloat of about the same amount. No reports
were made to the Confederate authorities by the banks, of their accounts,
and the foregoing data are derived from reports made shortly antecedent
to the war. The specie in the hands of the people was of course imme-
diately hoarded ; and was afterwards employed to a great extent in contra-
band trade ; that in the vaults of the banks remained for a long time un-
used ; but afterwards was in part secreted, in part taken possession of by
the Confederate Government, or turned over to its custody, and some of
it captured. Yet much of it must have gone abroad through the blockade
during the war, as the termination of the struggle revealed a very small
portion of the thirty millions, at first held by the banks, as still in their
possession.

The suspension of the banks early in the winter of 1861-'62 was not
from any inability to protect their circulation. This latter had recently
gone down very much in amount ; and the banks were abundantly able to
provide for it. The sus23ension was resorted to for the purpose of prevent-
ing the drain of specie which would have resulted from the large purchases
of merchandise at the Noi-th which the prospect of a long embargo would
have induced. The specie was saved ; but it proved a curse rather than a
blessing to the country. If by some talismanic power every dollar of it
could have been transformed into iron coins like those of Lycurgus, the
Confederacy would have been a gainer. It was extensively used in the
smuggling trade throughout the war, and the goods brought in through its
agency were sold at such enormous prices in Confederate currency as to
contribute very powerfully to the discredit of that cii'culation among the
people. True, the patriotic men and w^omen of the country prided them-
selves in homespun ; but far too many manifested a more eager desire for
exotic fabrics than ever before.

The first financial measure of the Confederate Government was the
issuing of the fifteen million loan, bearing eight per cent, interest, payable
in specie, for which an export duty of one-eighth of a cent per pound on
cotton was leaded and pledged. The second financial measure w^as the
negotiation of heavy loans from most of the banks in the form of discounts
upon negotiable notes drawn by the Secretary of the Treasury. After



# f22 THE LOST CAUSE.

these measures other loans in heavy amounts, upon bonds at long dateSj
were periodically made ; and the baneful system was instituted of Treas-
ury notes put out in the form of notes of circulation, in amounts ranging
from the fractions of a dollar up to notes of five hundred dollars. If to
these measures we add the cotton bonds, which were employed in England
and Europe for the purchase of war material, and the cotton loan upon
which they were based at home, we shall have mentioned all the leading
measures of finance employed by the Confederacy.

The fifteen million loan was early disposed of at satisfactory rates. Foi
a time the interest which had been stipulated to be paid in specie was actu-
ally discharged according to the terms of the contract ; but before the close
of the war the bondholders were either not paid at all or consented to ar-
rangements less difficult to the Treasury than the payment of specie. This
fifteen million loan in fact produced sore inconvenience to the Government
during the later years of the war, and was the first subject with reference
to which it was obliged to forfeit its faith to the holders of its paper.

The temporary loans negotiated from the banks were easily provided
for. By the time that the loans matured, the Treasury was able to dis-
charge them by means of the Treasury notes prepared for circulation.
But it was found in the sequel that these accommodations cost the banks
dearly. It has already been mentioned that at the outbreak of the war the
circulation of the Southern banks was quite inconsiderable in amount. To
meet the demand of the Government for loans, the banks very consider
ably increased their outstanding circulation ; in fact, they doubled, and, in
many instances, qradrupled it ; a thing which was perfectly safe during a
suspension of specie payments. Indeed, a large increase of circulation was
found to be quite necessary, after the disappearance of specie and under
the stimulus imparted by the war to all branches of trade. The fifty mil-
lions of currency found in circulation by the war was wholly inadequate
to the active state of business superinduced by the war. The banks accom-
plished two objects by one measure. In granting a loan to the Secretary
of the Treasury, they placed a large amount of funds in the hands of the
Confederate Government ; and they supplied, by the same act, the de-
ficiency of currency which was so stringently felt by the people. But the
act proved their ruin. The notes of circulation which they thus put forth,
following that law of finance which makes a base currency drive out of
circulation one less base, were hoarded. The bank notes, when lent by
these institutions to the Government soon spread over the country. They
were succeeded by similar paper issued in the form of currency by the
Confederate Government. The Treasury notes were distrusted, and in
proportion as they were distrusted, the notes of the banks were hoarded.
The law of finance which has been adverted to had a qtnck and striking ex-
emplification. The notes of the old familiar banks of the States were reserved



FINANCIAL MEASITKES OF THE CONFEDEKACY. ' 423

and put away by the people, and did not emerge from their retreat until
after the close of the war. They then began again to be seen in the hands
of the people. But they had come forth from their hiding places too late.
The banks had been ruined, and were found unable to pay any part of
their debts except a percentage upon their circulation. The notes of the
different institutions varied in market value according to the accidental cir-
cmnstances which intlucnced the original amount of accommodations which
they had granted in 1861 to the Confederate Secretary of the Treasury.

In the aggregate these accommodations had considerably exceeded the
capital stock of the banks. The Confederate Treasury had paid off the
accommodation notes due the banks with Treasury notes. The whole
amount of private discounts due the banks from individuals were dis-
charged by the agency of the same medium. Thus the whole capital stock
and assets of the banks were soon transformed into Treasury notes ; while
the heavy amount of their own notes which they had lent to the Gov-
ernment, disappeared from circulation and went into private hoards,
where they could not be reached. They had a heavy debt outstanding,
which could not be discharged ; and their whole available means consisted
of a daily depreciating currency, which they were obliged to receive in
payment of all dues to themselves. At the close of the war this currency
turned into dead leaves, and they were left in the possession of no assets at
all except the small amount of real estate occupied by their counting
houses, and the small modicum of specie which they had been able to save
from taxes, impressment, and robbery. Stockholders thus lost all their
shares, and the value of assets in hand was sufiScient-to meet but a meagre
percentage of the outstanding circulation, which the banks had impru-
dently put forth in originally granting such liberal loans to the Confeder-
ate Government.

With the negotiation of the fifteen million loan, and the exhaustion of
the means of the banks, all regular financiering ceased with the Confed-
erate Government. After that, money was manufactured by machinery to
meet the wants of the Government, and paid out as rapidly as it was
needed. Thus the volume of the circulation increased almost in equal
ratio with the expenditures of the Government. Considerable loans in the
form of bonds at long dates were authorized, and a good deal of success was
obtained in disposing of the bonds. But these sales were exceedingly out
of proportion to the magnitude of the expenditures ; and the heavy margin
of deficiency was boldly made up by the issue of Treasury notes. We
might recite here in detail the various acts of Congress that were passed
authorizing the difterent loans and directing the preparation and employ-
ment of Treasury notes of circulation. But the recital would be tedious,
dreary, and insipid. Suffice it to say that no measure whatever was taken
to secure a reflux of the .circulation to the source of issue, and thereby to



424 . THE LOST CAUSE.

restrict tlio volume of currency within manageable limits, and create a
demand for it essential to the maintenance of its value.

The patriotism of the people, however, provided a partial demand for
these notes. The growing redundance of currency produced high prices ;
and high j)rices produced large funds for investment in the hands of the
wealthy classes. These made it a point of patriotism to invest their sur-
plus caj^ital in the securities of the Government. Legislatures authorized
and the courts directed the funds held by fiduciaries to be invested in the
eight and seven per cent, bonds of the Confederacy. ISTecessity also came
in aid of patriotism to promote these investments. The great majority of
cajDitalists knew not what better disposition to make of their Treasury notes
than to convert them into Confederate bonds. The bonds drew interest ;
the notes drew none ; except indeed those hundred dollar seven-thirty
notes, which in fact were bonds. For a brief period after the first rise of
prices consequent upon the inflation, real estate came briskly into market,
and a great deal of it changed hands. But this species of investment soon
terminated. Speculation in the necessaries of life and in the staples of the
country was resorted to extensively by the class of men known as shai-pers ;
but it was distasteful to respectable people and highly disreputable in pub-
lic opinion. The consequence was, that the wealthy and respectable capi-
talists, who were men of public spirit and patriotic impulses, eschewed
these questionable operations, and converted their treasury notes into in-
terest-bearing bonds, drawn at long dates. Many, indeed, in an unbounded
faith in the success of the Confederacy, purchased negroes ; but the amount
of this property available for purchase was very small in proportion to the
vast capital accumulated in the hands of the people.

It so happened, therefore, that the very redundance of the currency
produced in partial degree a remedy for its own cure. The very excess of
circulation produced a necessity for its conversion into bonds. But the
misfortune was, that the remedy, as long as it lasted, always came too late
for the cure of the evil. It did not come into action until the depreciation
of the currency had taken place. The reflux did not return by a natural
flow, but resulted from a damming-up process. A competent agency
should have been employed, which should have watched, directed, and
controlled the movement from the beginning ; an agency clothed with
absolute power over the circulation, and endowed with a sufficient capital
to ensure a ready sale at reasonable prices of the public bonds.

The progress of the depreciation of the Confederate money was at first
gradual ; but afterwards very rapid. In January, 1862, a dollar in gold
^as worth at the brokers' shops in Richmond one dollar twenty cents in
currency. In July, 1862, it was still worth one dollar twenty cents. In
January, 1863, it had fallen to three dollars ten cents. In midsummer,
1863, the value varied from twelve to twenty. It afterwards, as we shall



i



DEPEECIATION OF COKFEDEEATE MONEY. 425

see, fell mncli lower. It must be observed, however, that these brokers*
rates, M-ere invariably a long period in advance of the rates acted upon in
the interionr. As late as the summer of 1S62, Confederate money was
taken at par in the settlement of all transactions originating before the war^
and made the basis of the general transactions of the country at the old
rate of prices. The brokers' rates were either unknown to the people or
totally disregarded by them. Kot until the volume of the currency had
Bwollen beyond all reasonable proportion, did the people at large consent
to fix a depreciated value upon this money. Even then they did so under
compulsion. Remorseless speculators had succeeded in engrossing the
entire stock of many of the comforts and prime necessities of life. These
were held at exorbitant prices ; and in order to compass the means of pur-