Author Interview--David K. Thomson (Bonds of War) Part 2

Niels Eichhorn Discussion

Hello H-CivWar Readers:

Today we continue our conversation with David K. Thomson to talk about his new book, Bonds of War: How Civil War Financial Agents Sold the World on the Union, published by the University of North Carolina Press in April 2022.

Part 1

The Civil War had a significant impact on finances as you show, how did pre-war investment and government debt/bonds issues work? Did the default by some Southern states in the antebellum era have any impact on the wartime financial systems?

DKT: As far as the antebellum period of investment, bonds were prominent at both the state and the federal level. The United States government had long used war bonds as a mechanism by which to fund wars-- going all the way back to the Revolutionary War. But in the period following the Panic of 1837, a large number of states North and South also issued state debt to fund infrastructure projects as well as act as a subsidy for wealthy enslavers to expand their operations (especially in states like Louisiana and Mississippi.) When states in the North and South defaulted in the 1840s it had a momentary impact on the ability of the federal government to borrow during the time period. By the time of the Civil War, however, almost every single state was not having issues placing and selling bonds on the international market. Despite this, the federal government (and their agents like former Secretary of the Treasury Robert Walker) will expend a significant amount of energy during the war, especially abroad, to remind European financiers and states of the default fiasco of the 1840s as a way to attempt to ward off possible investment in the Confederacy. Quotes by Jefferson Davis in defense of Mississippi's actions will be used extensively to try and scare Europe into not backing Confederate debt sales or underwriting loans. And one can probably say that these efforts did meet with moderate amounts of success.

What made U.S. war finances so reliable and superior in comparison to the southern states?

DKT: I think there are a few factors that can be pointed to that help to explain why the federal government met with more success than the Confederacy on the bond issuance front. I think it first of all did not hurt that the federal government had an infrastructure in place to produce and sell this debt and have a history of paying on said debt. The Confederacy was an unknown entity and some were wary to invest, even when the Confederacy met with military success in 1861 and 1862. The other thing, however, was that the Confederacy really tried to leverage cotton diplomacy in this era to their detriment. The churning out of currency as an alternative of course only led to rampant inflation. So in short, it was not a lack of trying to sell debt at home and abroad for the Confederacy, but the combination of overconfidence, a history of debt default, and the stain of slavery all conspired against them.  

Of course, another factor was probably the innovative approach by Jay Cooke. Let's talk about him briefly--he can be an innovator or the one who brings the financial markets in Reconstruction crumbling down. How do you view him and especially his work during the Civil War?

DKT: I think it is really important to try and differentiate Cooke's work from the war with his more well-known role in the Panic of 1873. Cooke really bailed government financial operations out if we are being honest. Prior to the fall of 1862, the Treasury struggled mightily to sell debt in order to finance the war-- a war that by that point was costing upwards of $1 million a day. So when given where the United States was at that point and how quickly Cooke is able to turn things around financially speaking, it really is quite remarkable. Now, Cooke also does some things during the war which will raise some eyebrows. He is the recipient of countless letters from his brother based in Washington asking why Jay is taking so long to deposit the funds from bond sales in government accounts. Reading between the lines, one can see that Jay Cooke was taking these funds and investing them for himself before turning around and depositing the required funds in New York City or Washington. So he's far from a saint in this situation during the war, but I think it is really important to give Cooke credit where it's due for his work in utterly transforming domestic bond sales during the war.

How much opposition existed during the war to the ever-increasing debt? Were there any politicians who used the debt as an argument to end the war?

DKT: The opposition to the debt during the war took on a variety of forms during the war itself so it might be useful to walk briefly through them. There's actually little political critique at the time of the size of the debt itself which of course balloons during the war. Sure, there are some who express concern, but there's not a fiscal argument being made to end the war based on the debt alone. Where the critiques really emerge are around 1) the issue of a fiat currency versus a gold standard 2) general levels of taxation 3) the possible monopoly Jay Cooke held over the bond agency during the war 4) and possible corruption/collusion between Cooke and the Lincoln administration as well as "partner" bankers in New York City. These proved to be the larger concerns when it came to finance during the war. It was not the debt itself-- as many recognized that while it might take time a debt could be paid off in the post-war period as military expenditures decreased. It became the source of a number of think pieces that all in some variation framed the national debt as a "national blessing."

As we slowly draw to a close, I want to briefly think about teaching. Finances and investment are not the stories of glory students enjoy, how do you integrate your work into your classes, especially during the Civil War?

DKT: When it comes to teaching this topic-- which I draw on not only in (briefly) the survey, but also my Civil War course and a course on the History of American Capitalism, I try to approach it much like I did the book itself. In other words, I try to ground it in the characters of the book. Rather than getting bogged down in the types of bond issues, the associated interest rates and so on, I look at this as an opportunity to see what life was like for those on the homefront in what I would argue is a woefully understudied component of the time period. By focusing on the Jay Cooke's of the world and his rather colorful cast of traveling agents, I think it connects with students and keeps them engaged while looking at the bigger picture ideas tied to how the war was ultimately financed.

Do you have any new projects in the planning?

DKT: I’ve just started work on a new project that will be the next book if all things go according to plan. I'm not abandoning the idea of bonds fully, but I'm expanding the scope and shifting the focus to look at state debt in the United States (as opposed to federal debt) from the late 1820s into the Reconstruction period. Specifically I am going to look at how states (North and South) leveraged this debt for a variety of purposes-- from internal improvements, to native land dispossession, to the expansion of enslavement-- and how it largely came crashing down in the 1840s and again in the Reconstruction era. This is certainly a new project in its early stages, but I'm very excited to see where it goes while once again exploring a Civil War era idea that has not gotten enough attention.