Abraham Lincoln

Campaign flag from Abraham Lincoln’s 1860 campaign. Courtesy of Mark Shenkman.

Lincoln earned his reputation as “Honest Abe” by repaying debts totaling $1,100 after his business partner died and their store “winked out” in an age when most young men would have simply fled to a distant jurisdiction. Rather than speculating in land or securities, Lincoln earned most of his money by working for it, as a rail splitter and boatman at first, and later as an attorney earning $2,000 to $3,000 per year. Antebellum politicians largely self-financed their election campaigns, so each time he ran for office Lincoln suffered a decrease in income as well as an increase in expenses. “I am absolutely without money now for even household purposes,” he wrote after a long, unsuccessful campaign for the US Senate in 1858 during which he ignored his law practice for half a year. Stressed by periodic electioneering, Lincoln’s estate grew slowly. In 1860 it stood at about $5,000 in land and $12,000 in personal estate. During the war, however, Lincoln was able to invest about half of his presidential salary of $25,000 per year in government bonds. (A big chunk of the rest went toward his son’s education at Exeter and Harvard). At his death, Lincoln owned his house in Springfield and a town lot in Lincoln, Illinois, 200 acres in Iowa and about $60,000 of government bonds. But he also owed a few thousand dollars to New York and Philadelphia merchants thanks to his wife’s surreptitious purchases of fancy jewelry and clothing.

$1 Seventh Ward National Bank of New York bank note, 1865.

The National Banking Act of 1864 (NBA), an overhaul of the National Currency Act of 1863, was the US government’s first foray into banking since the charter of the Second Bank of the United States expired in 1836. Rather than establish a new central bank, the law created a new banking system based on two antebellum innovations, general incorporation and bond security, and regulated by a new Treasury bureau, the Office of the Comptroller of the Currency (OCC). General incorporation laws allowed people who wanted to charter a business and who met certain legal requirements to do so with minimal effort or expense. They were fairer and more efficient than the older system of special charters because they entailed administrative rather than politicized legislative decisions. The NBA’s requirements were straightforward: five or more incorporators and directors; completion of a simple information certificate (bank name, location, capital stock, etc.); and at least $50,000 (if located in a community with up to 6,000 residents), $100,000 or $200,000 (if located in a community with more than 50,000 residents) in equity capital, half of which had to be paid in before operations could lawfully commence. Bond security laws mandated that a bank that issued notes back them by depositing bonds with their government regulator for liquidation and payment to note holders should the bank fail. The NBA kept note holders safe, and coincidentally increased demand for Union war bonds, by mandating that national banks deposit with the US Treasurer at least one third of their capital in the form of government bonds. It also required a further deposit if a bank’s note issue exceeded 90% of the lesser of the market value, or par value, of the deposited bonds. The NBA did not prohibit state banking and a 10% tax on state bank notes, passed in March 1865, failed to drive state banks to convert or close so the nation ended up with a dual banking system inhabited by both federal and state banks.

Memo from President Abraham Lincoln to Secretary of the Treasury Salmon P. Chase listing assets Lincoln wanted converted into bonds.

On June 11, 1864, President Abraham Lincoln collected all his bonds, notes, cash and gold, and walked from the White House to Secretary Chase's office in the Treasury Department. Assistant Secretary of the Treasury Maunsell Field described the scene:

"I happened once to be with the Secretary when the President, without knocking and unannounced, as was his habit, entered the room. His rusty black hat was on the back of his head, and he wore, as was his custom, an old gray shawl across his shoulders… I said good morning to Mr. Lincoln, and then, as was the established etiquette when the President called, withdrew… In less than five minutes I was summoned to return to the Secretary… The President was gone, and there was lying upon one end of Mr. Chase’s desk a confused mass of Treasury notes, Demand notes, Seven-thirty notes, and other representatives of value. Mr. Chase told us that this lot of money had just been brought by Mr. Lincoln, who desired to have it converted into bonds."

Along with this "confused mass" of paper and coins was a note listing the items left behind and a request for Chase to "fix up" what was there. Lincoln’s inventory consisted of $16,200 in Seven-Thirty notes, $26,181.40 in Temporary Loan certificates, $8,000 in Five-Twenty bonds, $4,044.67 in uncashed Treasury salary warrants, and $89.00 in greenbacks. To this inventory Lincoln added at the last minute a bag of gold coins worth $883.30, resulting in a collection of assets worth $55,398.37.

Bond issued to Abraham Lincoln featuring his portrait, 1864. Courtesy of the Bureau of the Public Debt.

Many of the securities purchased for Lincoln in 1864 were produced by the Bureau of Engraving and Printing, and some even bore Lincoln’s portrait. Certain denominations of the Loan of 1863 and the Five-Twenty bonds had on them an image of Lincoln engraved by Henry Gugler, one of the BEP’s first engravers. Thus, Lincoln owned securities bearing his own picture. The image of Abraham Lincoln appearing on this security was derived from a photograph taken by local photographer C.S. German in Springfield, Illinois, on January 13, 1861.

Early in 1861, shortly after Lincoln’s inauguration, the two large bank note companies had engravings made of the new President’s portrait, using German’s photograph. One of these was done by engraver Frederick Girsch for the American Bank Note Company and appears on the $10 greenback of the time.

The engraving of Lincoln most often seen on Treasury securities during the Civil War was the work of Henry Gugler. He made an engraving for the National Bank Note Company that first appeared on bonds in late 1861. Gugler joined the Bureau of Engraving and Printing in early 1863, and his engraving was used extensively on government bonds during the war.

The portraits of living government officials are not seen today on US currency and securities. However, before 1866, it was common for Treasury securities to bear the picture of the current President or another government official. This practice expanded during the Lincoln administration with President Abraham Lincoln and Secretary of the Treasury Salmon P. Chase frequently appearing on government money and bonds. Other Civil War personalities such as General William Sherman and General Ulysses Grant also showed up, including Spencer Clark who was in charge of the organization that would grow into the Bureau of Engraving and Printing.

When Clark’s portrait appeared on a five cent fractional currency note in December 1864, Congress decided the practice of putting government officials on United States currency and securities had gone far enough. On April 7, 1866, Congress made it illegal for any living person to appear on government money or bonds of any kind. The law stands to this day, preventing the image of current and recent Presidents from appearing on the nation’s currency and coins.

Greenbacks, such as this $5 bill issued in March 1863, were a form of legal tender paper money created by the Union government to help finance the Civil War. The colors, ornate designs, unique identification number, signatures and denomination-studded borders were designed to limit counterfeiting, a major weakness of similar bills, called Continentals, issued during the Revolution. With the help of the newly formed Secret Service, counterfeiting was kept under control, but the other weakness of fiat money, rising prices, was not.

Greenbacks funded about 15% of the war effort but raised inflation rates to 14% in 1862 and 25% in 1863 and 1864. Inflation pushed up the cost of war material and reduced the welfare of workers, professionals, annuitants, bondholders and others whose incomes did not keep pace with the higher cost of living. The chief justice of Wisconsin, for example, needed to sell assets and obtain bank loans because the state did not raise his salary, fixed at $2,500 in 1857, during the war.

The new money also initiated debates about the proper anchor for the US monetary system that permeated national politics into the early 20th century. The Wonderful Wizard of Oz, conceived by L. Frank Baum in the 1890s, can be read as an allegory regarding those debates with the yellow brick road representing gold, Dorothy’s slippers (in the book) representing silver, and the Emerald City representing greenbacks.

$Three cent fractional postage currency.$

After the outbreak of hostilities, banks throughout the country suspended specie payments. In other words, they no longer exchanged their notes or deposits for gold and silver coins on demand. At the same time, people hoarded most of the coins in circulation. A dearth of small change was a common occurrence in antebellum America, so cash-reliant businesses knew that they could profit from the situation by issuing their own small denomination promissory notes, derisively known as “shinplasters,” as change. Soon, “hotels, business houses and dealers generally” began issuing notes to earn seigniorage. (Seigniorage is profit from the issuance of money. The notes in circulation were essentially zero interest loans and inevitably some notes would never be returned to the issuer for payment.) Fearing “the most serious inconveniences and evils” from the proliferation of small, unregulated notes, the government in July 1862 outlawed shinplasters and authorized in their place a federal fractional paper currency in the form of stamps, which were already in widespread use as a means of making small payments. After the Post Office refused to supply additional stamps, the government issued small denomination notes that resembled stamps. In 1864, it outlawed private coins issued in lieu of the rapidly shrinking supply of pennies.

The spread of slavery meant lower profits and wages in the North.

Scholars agree that slavery helped to cause the Civil War but disparate views on its role in the outbreak of hostilities persist. Some believe that the peculiar institution was a necessary cause, that without it the Union would have never been torn asunder. Others believe that it was simply one of a number of issues – most importantly banking, land, transportation and tariff policies – that evoked deep mistrust of the North among the many Southern advocates of states’ rights (a doctrine that held that the federal government’s only powers were those expressly granted to it by the Constitution). Such people called the conflict the War Between the States or even the War of Yankee Aggression.

A new perspective holds that the North did essentially force a confrontation with the South not over slavery per se, but over the problems that southern slavery caused in the North, especially the truncation of national markets due to the South’s relative economic underdevelopment, the same relative dearth of financial markets, manufacturing capacity and transportation infrastructure that allowed the Union armed forces to eventually defeat brave, well-led Confederates on their home turf. Slavery, in this view, had to be ended because it heavily taxed the national economy by reducing the work effort of millions of Americans and by imposing excessive labor control costs on society in the form of slave patrols, fugitive slave acts and other pro-slavery policies. Slavery, in other words, cut into Northern profits and net wages.

Salmon P. Chase, Secretary of the Treasury (March 1861 to June 1864)

Salmon P. Chase was the first of three Treasury Secretaries appointed by Abraham Lincoln. Born in Cornish, New Hampshire in 1808, Chase lost his father at age nine and from age 12 was raised in Ohio by his uncle, Episcopal bishop Philander Chase. He graduated from Dartmouth in 1826 and taught at an academy in Vermont before moving to Washington, DC to study law under famed jurist and US attorney general William Wirt. Chase moved to Cincinnati in 1830 where he became active in the abolition movement. He served Ohio as governor and in the US Senate and was a prominent founding member of the Free Soil movement and, later, the Republican Party.

As Treasury Secretary, Chase was instrumental in the Union war effort. He increased taxes and improved the efficiency of their collection with the establishment of the Bureau of Internal Revenue, now called the Internal Revenue Service (IRS). He also created demand for Union war bonds by establishing a national banking system that required member banks to secure their note issues with government bonds. Most controversially, Chase issued fiat paper currency (bills of credit), called greenbacks, which created considerable inflation. Later, as Chief Justice of the Supreme Court, Chase ruled the money that he helped to create unconstitutional!

Chase and Lincoln were often at loggerheads, but Lincoln rebuffed his first two resignation attempts. Only in June 1864, with the war, its financing and his nomination in hand, did Lincoln let him go. After Roger B. Taney died in October of the same year, however, Lincoln rewarded Chase with the post of Chief Justice. Chase died in New York City in 1873 after twice failing to be nominated for President. His portrait graced the $10,000 Federal Reserve Note before that denomination was discontinued after the Depression. Several buildings, municipalities and a bank and law school are named after Chase.

$10,000 bill featuring the portrait of Secretary of the Treasury Salmon P. Chase.

The $10,000 bill featuring the portrait of President Lincoln’s Secretary of the Treasury, Salmon P. Chase, was the highest denomination US currency ever to publicly circulate. Although a $100,000 bill featuring the portrait of Woodrow Wilson was issued, its purpose was to transfer funds between Federal Reserve Banks, and not to pass in retail transactions. Since 1969, the highest denomination note issued in the US has been the $100 bill.

William Fessenden, Secretary of the Treasury (July 1864 to March 1865)

William Fessenden was the second of three Treasury Secretaries appointed by Abraham Lincoln. Born in Boscawen, New Hampshire in 1806, he graduated from Bowdoin College in 1823 before studying and then practicing law in Maine. Fessenden was a temperance advocate and a vocal abolitionist and served in Maine’s legislature and the US House of Representatives before his election to the Senate in 1854 where he made important speeches regarding the Kansas-Nebraska Act, the Clayton-Bulwer Treaty, the Lecompton Constitution and the Dred Scott decision.

After Southerners left the Senate at the start of the war, Fessenden was appointed chairman of the finance committee and hence worked closely with Chase on war finance measures. Despite his failing health, however, he was an obvious choice to replace Chase. A critic of greenbacks, the fiat bills of credit issued to help finance the war, Fessenden stopped issuing them in a successful attempt to slow down inflation, which had run at about 25% per annum in 1863 and 1864. In place of the depreciated currency, he sold through Jay Cooke and other investment bankers bonds in small denominations that paid 7.30% interest, or two cents per day per $100 invested.

In March 1865, following his re-election, Fessenden returned to the Senate where he resumed his chairmanship of the finance committee. He later headed the Joint Committee on Reconstruction and voted against the purchase of Alaska and the impeachment of Andrew Johnson. Fessenden died in 1869 and is buried in Portland, Maine.

Hugh McCulloch, Secretary of the Treasury (March 1865 to March 1869; October 1884 to March 1885)

Hugh McCulloch was the third and final Treasury Secretary appointed by Abraham Lincoln. Born in Kennebunk, Maine and educated at Bowdoin, McCulloch studied law in Boston before moving to Fort Wayne, Indiana to practice. He soon moved into banking and was president of the Bank of Indiana from 1857 to 1863. He opposed the National Banking Act of 1863 but accepted Chase’s invitation to serve as the first comptroller of the currency and was instrumental in reforming the new system in 1864. Following Lincoln’s assassination, he stayed on as Andrew Johnson’s only Treasury Secretary and pushed for a rapid retirement of greenbacks and a return to the gold standard. That monetary policy was reversed after causing deflation (declining prices) of 2.5% in 1866 and almost 7% in 1867. His policies for integrating the Southern states into the federal government’s new revenue system and paying off the national debt, however, were largely implemented.

Upon his replacement by the new President, U.S. Grant, McCulloch joined in partnership with investment banker Jay Cooke and set up an office in London. Later, McCulloch briefly served as Treasury Secretary under President Chester Arthur during which time he continued to press for a return to the gold standard. He died in 1895 near Washington, DC and is buried in Rock Creek Cemetery there. Several small ships and a residence hall at Harvard are named for him.

$10 Confederate States of America note, 1863.

The Confederate States of America (CSA), the federal government of the rebellious Southern states, had a very difficult time financing its war effort. The Union blockade prevented the export of most of the South’s cotton and other staple crops and stymied attempts to import specie (gold and silver coins) or other goods from abroad. Specie was therefore in short supply and tariff revenues were almost nil and the CSA, ostensibly founded on states’ rights principles, found it politically inexpedient to invoke, let alone collect, direct taxes. Tax revenues therefore accounted for less than 10% of the CSA’s total receipts.

Given the blockade, the region’s anemic supply of specie, the uncertain outcome of the war, and its weak tax revenues, the CSA found it difficult to borrow domestically or abroad. Loans therefore accounted for only about a third of its wartime expenditures and much of its borrowing occurred early in the war, when a quick (read cheap) victory appeared possible.

Thus constrained, the CSA turned to the printing press to supply most of its financial resources. Much like during the American Revolution, state governments issued bills of credit like those pictured while the CSA issued so-called graybacks analogous to Continentals. Although similar in form and function to the North’s greenbacks, Confederate currency was issued in sums far greater in proportion to the Southern economy than the Union’s fiat currency was. The South also suffered much more at the hands of counterfeiters. The result of the rapidly expanding money supply was runaway inflation, second in American history only to the hyperinflation of the Revolution. By 1863, it took 10 CSA dollars to purchase a gold dollar. The following year, it took 30. By early 1865 the price of a gold dollar was 50 or more CSA dollars. By contrast, it never took more than three greenbacks to buy a gold dollar.

Monthly Return of Clothing, Camp and Garrison Equipage (receipt).

The Civil War’s overall impact on the US economy has been hotly debated since the early consensus that it provided a fundamental spur to industrialization was drawn into question in the 1960s. The effect of the war’s biggest economic reform, the elimination of slavery, was muted by the postbellum quasi-enslavement of millions of free persons in systems of sharecropping and debt peonage that further exacerbated the South’s relative economic backwardness. And while the war effort certainly aided industries that produced military supplies, like the clothing and camp equipage listed in the accompanying monthly return, other industries not closely linked to the war effort suffered.

Documents such as these also highlight the Union’s tremendous material advantage over the Confederacy. When the war began, the Union retained 71% of the nation’s population and railroad mileage, 65% of its farmland, and a whopping 92% of its manufacturing workers and manufacturing output. It also controlled the majority of the nation’s pack animals and steamboats. Just as importantly, the North possessed most of the nation’s financial system, including the majority of its banks and insurance companies and, in New York, Philadelphia, Boston and Chicago, its most important securities markets (derivatives, foreign exchange, stocks and bonds). So what it did not already have it could buy abroad or finance new factories to build.

Check dated August 16, 1873 and signed by financier and patriot Jay Cooke.

Cooke was born in Sandusky, Ohio in 1821 and died in Elkins Park, a northern suburb of Philadelphia, in 1905. A road, a school, a state park and at least two towns are named for him due to his philanthropic efforts and his conspicuous role in financing the Union cause during the Civil War.

Jay Cooke & Company began operations in Philadelphia on the eve of the war. Due to his relationship with Treasury Secretary Salmon Chase and the Treasury’s difficulty marketing its own bonds, Cooke and his company contracted to sell $400 million of “five-twenty” bonds for a commission that averaged less than one half of one percent. That was enough for Cooke to hire some 2,500 agents to aggressively market the bonds throughout the country, even in occupied areas of the Confederacy, to banks, wealthy capitalists and common folk.

Cooke also enlisted Northern newspapers to run advertisements and editorials extolling the bonds as patriotic investments. His organization also kept the Union war machine well greased with cash by selling some $800 million of “seven-thirty” notes. Chase called the efforts of Cooke and his agents “indefatigable” and claimed that “the history of the world may be searched in vain for a parallel case of popular financial support to a national government.”

After the war, Cooke became interested in the Northern Pacific Railway and its terminus in Duluth, Minnesota on Lake Superior. Speculation in the railroad’s watered shares, which dropped in value at the outset of the Panic of 1873, fomented his bankruptcy. By 1880, however, Cooke had recouped some of his fortune due in part to a shrewd investment in a Utah silver mine.

Bond circular advertising subscription and sale of Seven-Thirties, 1865.

Some of the Union securities were bearer instruments: the holder received any principal or interest due by surrendering the instrument to the Treasury or its paying agent. Others were coupon bonds: the holder received interest payments by clipping off and remitting part of the bond, called the coupon, when due. Still others were registered: the bond owner’s name was tracked in account books and interest credited when due. Bearer securities were the most liquid (easily traded) while registered debt was the most secure (safe from theft or loss).

Seven-Thirties were notes that matured (principal had to be repaid) in three years. They were so named because they paid investors 7.30% interest per year, or 2 cents per day per $100 invested.

Five-Twenties were bonds so named because they matured in 20 years but were redeemable (the government retained an option to repay the principal if it saw fit) after only five years. They paid 6% interest.

Certificates of Indebtedness were bonds bearing 6% interest paid to satisfy audited accounts due to Union contractors. They matured in one year but were immediately redeemable by the government. Almost $562 million were issued during the conflict.

Ten-Forties were bonds so named because they matured in 40 years but were redeemable at the option of the government after 10 years. Some paid 6 and others 5% annual interest.

Compound Interest Notes were legal tender notes issued in denominations ranging from $10 to $1,000. They were designed to circulate as currency but seldom did so because they paid 6% interest. Almost $249 million were issued during the war.

The 14th Amendment of the Constitution, ratified July 9, 1868.

Ratified on July 9, 1868, the 14th Amendment elucidates important rights, including due process, equal protection under the law, and suffrage and hence is widely cited in a variety of important human rights cases. In addition, the amendment’s fourth section declares that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” That phrase, which was reminiscent of Article 6’s firm declaration that the government would repay its debts from the Revolution, bolstered confidence in the government’s bonds. It was used by several participants in the debt ceiling debate of 2011 to argue that it would be unconstitutional for the federal government to purposefully default on its obligations. The rest of Section 4 also bolstered investor confidence by barring the federal and state governments from paying the bonds or other obligations of the Confederate governments and from reimbursing slaveholders for the loss of their human chattel. Two huge additional potential burdens on the federal Treasury were thereby disavowed.

Punch magazine cartoon, “Lincoln’s Two Difficulties,” 1862.

In this cartoon, published in the famous London satirical magazine Punch on August 23, 1862, a disheveled Lincoln, posed as a beggar, discovers that the Union is broke and out of soldiers. (Note that Lincoln is dressed very much like “Uncle Sam,” a flag-clad personification of the US government that originated around the War of 1812 but did not become widely used until the Civil War.)

Late 1862 was indeed a difficult period for the Union. In 1862, the federal government ran the largest deficit in its history up to that time, almost $423 million, or over 7% of GDP. And the number of men “absent” from the Union army more than quadrupled, from just under 50,000 to almost 220,000, over the course of that year.

The Union’s position, however, was not nearly as dire as the cartoon suggests. The number of Union soldiers in the field actually grew from 527,000 to 699,000 over 1862 and the Treasury, though behind on some payments, did not default on its bonds. Moreover, subsequent policy changes – like the National Currency Act (February 25, 1863) and enrollment act (March 3, 1863) – increased government revenues and swelled the military’s ranks. At the long war’s end, the Union still had 658,000 men in the field compared to just 160,000 for the Confederacy and the government, although in debt some $2.7 billion, or 27% of GDP, was still able to borrow large sums on good terms.

President of the United States (1861-1865)

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