Monthly Archives: July 2015

Civil War Arbitrage

Wouldn’t it be great if an act of Congress enabled your federal government bonds to be worth twice what you paid for them?

That’s precisely what happened for many federal Civil War bond investors.

In the second year of the War in 1862 it was obvious the federal government could not finance the war without creating new financial instruments and issuing an unprecedented amount of bonds. Federal indebtedness increased from $65 million to $2,700 million during the war. The federal government also issued about $450 million in greenback paper currency. Greenbacks were legal tender for all debts except for customs duties, which still had to be paid in gold.


Consequently, the value of the greenback dollar fluctuated in relation to the gold dollar based upon market confidence—or lack of it—that greenbacks would ultimately be redeemed in gold at face value. In June 1864, for example, the market quote required 2.7 greenback dollars to buy a single gold dollar. In reciprocal terms, 37 cents in gold could be exchanged for a greenback dollar.

The differential created an arbitrage opportunity in the US Government Bond market. Suppose an investor had $1,000 in gold when the exchange rate was two greenbacks for each gold dollar. Thus, she could exchange her gold for $2,000 in greenbacks and buy a like amount of federal war bonds with an interest rate of—say—6% annually. Since the US Treasury was required to pay bond interest in gold, she would collect $120 of interest annually instead of a mere $60. Basically she doubled her annual investment yield from 6% to 12%.

But eventually she discovered a bigger opportunity—arbitrage. She lobbied Congress to redeem her bonds at par in gold. Because she represented herself as a “sound money” advocate—instead of someone who would profit personally—four years after the end of the war Congress ruled (with President Grant concurring) that all bonds be redeemed at par in gold when they matured. Therefore her $1,000 gold investment would be returned as $2,000 in gold when the bond matured. Until then our shrewd lady earned a 12% annual interest rate on her original $1,000 gold investment.

As the logical reader no doubt concludes, when investors get “something extra for nothing” somebody else pays for it. The “somebody else” is composed of the taxpayers who didn’t own federal war bonds. Many Northern families bought the bonds, which were aggressively marketed by Jay Cooke & Company to individuals instead of institutions. National banks were also large holders because the federal government ruled that such bonds could be counted among a banks reserves. The chief group of taxpayers who did not hold such bonds was Southerners, black and white.

The federal government paid-off Civil War bonds over a period of decades after the war. Non-bondholders not only had to pay their share of the taxes to repay the bonds, but also had to help fund the extra bonus that par value gold redemption provided.

If you enjoyed the above commentary, consider reading one of my books:

The Confederacy at Flood Tide
Lee’s Lost Dispatch and Other Civil War Controversies
Trading With the Enemy
Co. Aytch: Illustrated and Annotated

Civil War Legacy

Ruins_of_Richmond,_VA.,_1865_-_NARA_-_524883.tifProvided below is a copy of my Civil War Legacy essay that was published today (July 27, 2015) at the Discerning History website.

Over the past fifty years, historians reinterpreted Civil War Reconstruction. Shortly before the Centennial it was generally agreed the chief aim of the Republican-dominated congress was to ensure lasting party control of the federal government by creating a reliable voting bloc in the South for which improved racial status among blacks was a coupled, but secondary, objective. However, by the Sesquicentennial it had become the accepted view that Republicans were primarily driven by an enlightened drive for racial equality untainted by anything more than negligible self interest. Consequently the presently dominant race-centric focus on Reconstruction minimizes political and economic aspects.

Contrary to popular belief Southern poverty has been a longer-lasting Civil War legacy than has Jim Crow or segregation. Prior to the war the South had a bimodal wealth distribution with concentrations at the poles. The classic planters with fifty or more slaves had prosperous estates but they represented less than 1% of Southern families. Partly because 1860 slave property values represented 48% of Southern wealth, seven of the ten states with the highest per capita wealth soon joined the Confederacy.

My Civil War books:

Lee’s Lost Dispatch and Other Civil War Controversies
Trading With the Enemy
Co. Atych: Illustrated and Annotated


However, since two thirds of Southern families did not own slaves the 1860, per capita income of the region was only slightly ahead of the north central states and well behind the average northeastern state. A century later eight of the bottom ten states in per capita income were former members of the Confederacy. Even 151 years later only one Southern state, Virginia, ranked within the top ten in per capita income. Moreover, five (half) of the bottom ten in 2011 were former Confederate states. The classic example is Mississippi, which ranked number one in 1860 per capita wealth, but was dead last at fiftieth in 2011 per capita income. The depths of post Civil War Southern poverty and its duration were far greater, longer, and more multiracial than is commonly understood. It took eighty-five years for the South’s per capita income to regain the below average percentile ranking it held in 1860.

Essay continued here.

European Ironclads

Contrary to popular belief, the Monitor and the Merrimack were not the first two ironclad warships.

The early March 1862 duel between the USS Monitor and the CSS Virginia – commonly called the Merrimack because she was constructed from the salvaged hull of a scuttled federal frigate by that name – represented the first battle anywhere between two ironclad warships. While neither ship could seriously damage the other, when the Virginia destroyed three wooden Union blockaders the previous day, it was obvious that wooden warships everywhere were obsolete.

Prior to America’s Civil War, Britain and France had the world’s two most powerful navies. Each was also in an arms race with the other, so both navies were destined to grow rapidly. Two years before the America’s Civil War, France launched the first deep-water ironclad, La Glorie. Britain quickly followed with the HMS Warrior and HMS Black Prince. In 1861 the British had already decided that their future fleet should be entirely composed of armored ships. When the USS Monitor and CSS Virginia squared off at Hampton Roads, the British had fifteen armored ships under construction and eleven were completed by the end of 1862. Unlike the Monitor or Virginia all were capable of trans-Atlantic voyages and were much faster than the American ironclads.

The HMS Warrior has been restored. The picture below provides an indication of her power and size. There can be no doubt that such a vessel could defeat a fleet of US wooden blockaders. Additionally, in combat with monitor class warships, Warrior’s larger size and faster speed would be formidable advantages.


Although, the Monitor’s success in neutralizing the Virginia prompted the US Navy into a crash ironclad construction program, the vessels were only intended for use in coastal waters and were slow. They couldn’t reliably cross an ocean or engage ships like Warrior or La Glorie on the high seas. When the war ended in 1865 the federal navy may have been the most advanced and powerful in the world. However, at the end of the 1861 – 62 winter only fifteen US ironclads had been put in service.

Most historians agree that Britain and France never came closer to intervening in the American Civil War than in the September or October of 1862 when their ironclad fleets were likely superior to those afloat in the US Navy. After lifting the Southern blockade, ships like Warrior and La Glorie could blockade Northern ports such as New York, Boston, Providence, Baltimore, and Philadelphia. Given such a turning-of-tables in naval power alone, Northerners might have been tempted to conclude that it was better to let the Southern states depart peacefully than to continue the war.

What do you think?


If you enjoyed the commentary above, consider one of my books:

Lee’s Lost Dispatch and Other Civil War Controversies
Trading With the Enemy
Co. Aytch: Illustrated and Annotated

Emancipation or Slave Rebellion?

Was the Emancipation Proclamation a deliberate attempt to incite a slave rebellion?

Such a rebellion would almost certainly have compelled Confederate soldiers to desert in order to protect their homes and families. Even if they were members of the two-thirds of Southern families that did not own slaves such a event could trigger a race war. The danger was a particularly sensitive point in states like South Carolina, Louisiana, and Mississippi where slaves represented over half, or nearly half, of the population. The Confederacy would have little chance of surviving a widespread servile insurrection that would require it to fight both the slaves and the Union armies.

Although there were few prior American slave rebellions, Nat Turner’s 1831 Virginia uprising confirmed they could be merciless racial conflicts. During their brief summer rampage Turner’s rebels killed nearly every White they encountered. A total of about sixty were massacred, mostly women and children.

One near-victim was George Thomas who was spared because he fled his home to hide in the woods with his mother and sisters. Thomas later became a famous Union general credited with saving an entire army during the battle of Chickamauga. Out of 7,000 Blacks in the region, Turner was only able to get about sixty followers. There were even reports that some masters armed their wards and that the slaves helped put-down the insurrection. Continue reading

Maryland Secession

MarylandAlthough Maryland never joined the Confederacy, the story of why she didn’t merits scrutiny.

Shortly after President Lincoln called for 75,000 volunteers to suppress the cotton states rebellion, Maryland Governor Thomas Hicks convened a special session of the legislature on April 26, 1861. Since Hicks was a Union-loyal man he did not want the session held in the state capital at Annapolis because of the prevailing Southern attitudes in the eastern part of the state. Therefore he chose Frederick, which was a strongly pro-Union town northwest of Washington.

The session starting on April 26 adjourned on August 7 without voting to secede but agreeing to reconvene again in Frederick on September 17. However, the April-to-August session did approve two items hostile to the federal government. First, it voted to refuse to reopen railroad connections to the Northern states that were cut when bridges north of Baltimore were destroyed four days after Lincoln’s call for volunteers. Second, it passed and delivered a resolution to President Lincoln protesting Union occupation of the state.

After the Confederate victory at First Bull Run on July 21, Southern sentiment gained potency in the state. Another Confederate victory at Wilson’s Creek in Missouri the following month strengthened the impression that the Confederacy would win its independence. (It would be another six months before a significant Union victory would suggest otherwise.) By mid-September many legislatures increasingly believed Maryland could join the winning side by seceding whereas picking the winning side earlier appeared to be a more speculative matter.

Although Maryland voters had previously chosen their legislators in free elections, President Lincoln concluded he would selectively prevent those representatives suspected of harboring pro-secession attitudes from attending. Consequently, he suspended the writ of habeas corpus and arbitrarily arrested legislators presumed to be pro-Confederate. He never brought any of them to trial for the simple reason that they had not committed any crime.

Thirty-one legislators were arrested. Many others were prevented from attending because they realized that if they journeyed to Frederick they too would be arrested if Lincoln suspected them of Southern sentiments.

While nobody can know whether Lincoln’s “intervention” (usurpation?) prevented Maryland’s secession, at least one authoritative participant concluded that it did. Specifically, Assistant Secretary of State Fred Seward, who was the son of Secretary of State William H. Seward and involved in the arrests, wrote that he believed the session of the Maryland General Assembly scheduled for September 17 would have voted to secede.

If you enjoyed the above analysis, consider one of my Ciivl War books.

Lee’s Lost Dispatch and Other Civil War Controversies
Trading With the Enemy
Co. Aytch: Illustrated and Annotated

Differences Between US and Confederate Constitutions

All that most academic historians want their students to know about the Confederate Constitution is that it expressly protected slavery: “No . . . law denying the right of property in the Negro shall be passed.”

But the people who wrote it had lived under the U. S. Constitution. They knew the latter’s strengths, which they tried to copy, and its weaknesses, which they tried to eliminate. Mostly they wanted to avoid a concentration of power in the central government by maximizing the rights and responsibilities of the states and limiting those of the confederation’s government. Thus, the 1861 Confederate Constitution is basically a reformed version of the U.S. Constitution, although a more complete analysis is available here.

During the preceding seventy-two years the Confederate founders had watched as the U. S. Federal government became manipulated by crony capitalists who persuaded their representatives to increase the central government powers in order that it may subsidize the capitalists. Northern states wanted the Federal government to fund speculative public works, then known as internal improvements, that the states themselves avoided due the financial risk. Southerners felt that such programs should be funded by private enterprise or the states themselves.

Consequently, the Confederate Constitution outlawed internal improvements except for limited programs involving harbors and rivers that would be repaid by user fees. It also dropped the “general welfare” clause in the U. S. Constitution’s taxing authority, which Northerners increasingly used as an open gate for many types public spending programs. The “general welfare” clause continues to be abused with the result that America’s budget deficits today are out of control. The Confederate constitution authorized taxes for only three purposes:  military defense, government operating expenses, or to repay debts.

Additionally, only the President could normally put bills before the Confederate Congress. This was to prevent representatives from introducing pork-barrel projects. All bills had to state the amount of money required and the title had to identify the object of the spending. This basically eliminated omnibus spending bills. Cost overruns were not allowed. The minority of bills that might originate in Congress would require a two-thirds majority vote of each house to be enacted. If adopted by America today, this single provision would eliminate much of our wasteful spending.

Similarly, Northern states prevailed upon the federal government for high protective tariffs to immunize their manufacturers from overseas competition. Southerners opposed the tariffs for two reasons. First, they had almost no manufacturers. Second, protective tariffs interfered with the ability of Europeans to generate the exchange credits needed to buy Southern farm goods because it reduced the Europeans’ sales of manufactured goods into the American market.

As a result, the Confederate Constitution outlawed protective tariffs. Although ordinary “revenue” tariffs would fund the Confederacy’s operations, no duties could be used to “promote or foster any branch of industry.” Other business subsidies, such as bounties that New England fishermen had been collecting in the U. S. A., were also outlawed.

The Confederate founders were additionally concerned about bureaucratic creep, which could lead to a tyrannical central government in the form of a deep-state of career administrators. Consequently, each state could impeach a Federal (Confederate) official operating exclusively in their state by a two-thirds vote of both houses of the applicable state’s legislature. Such officials would be tried by the C. S. A. Senate, with a two-thirds vote required for conviction.

Another safeguard against a too-powerful central government was a stipulation that constitutional amendments could only originate with the states. Although they could not be introduced in Congress any three states could form a convention to propose new amendments.

Finally, each President was limited to a single six-year term. As another measure to minimize pork-barrel spending, he was granted line item veto powers.

Contrary to the arguments of most modern historians that the Civil War was “all about” slavery, the constitutional provisions noted above show that the Confederate founders had big concerns about the powers of the central government. They also showed that states’ rights were one way Southerners intended to limit such powers. Thus, historians now claiming that Southerners only mentioned states’ rights as a war issue after the the South already lost the War are wrong. Such rights had been a major consideration from the beginning.

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