CHAPTER XXV.

GETTYSBURG AND VICKSBURG TWIN DISASTERS FOR THE CONFEDERATES.—THEIR EFFECT ON THE CONFEDERATE CURRENCY.-THE FINANCIAL SYSTEM OF THE SOUTHERN CONFEDERACY.-THE MODERN SYSTEM OF PUBLIO CREDITS AN ENCOURAGEMENT TO WAR.-REVIEW OF FINANCIAL EXPERIMENTS IN THE MODERN WARS OF EUROPE.-THE THREE CONSPICUOUS EXAMPLES OF GREAT BRITAIN, FRANCE AND RUSSIA. THE GREAT FINANCIAL ERROUR IN THE AMERICAN WAR.-HOW A BANK OF EXCHEQUER WOULD HAVE OPERATED IN THE WAR.-THE RULE OF REFLUX IN CURRENCY.-BRIEF STATEMENT OF FINANCIAL CONDITION OF NORTH AND SOUTH AT CLOSE OF THE WAR.-SUSPENSION OF THE SOUTHERN BANKS IN THE FIRST YEAR OF THE WAR.-AMOUNT OF SPECIE IN THE SOUTH AT THE COMMENCEMENT OF THE WAR.-PRINCIPAL MEASURES OF CONFEDERATE FINANCE.-HOW THE SOUTHERN BANKS BECAME INVOLVED.-PRACTICAL RESULTS OF THEIR LOAN TO THE GOVERNMENT.-" MAKING MONEY BY MACHINERY."-SALES OF CONFEDERATE BONDS.— SPECIAL OCCASIONS FOR THIS INVESTMENT.-UNEQUAL TO RELIEVE THE CURRENCY.RATES OF DEPRECIATION OF THE CONFEDERATE MONEY.-RICHMOND, THE CENTRE OF FINANCE AND TRADE.-GOLD NOT A MEASURE OF VALUE IN THE CONFEDERACY.-REASONS FOR ITS EXTRAORDINARY APPRECIATION THERE.-COMPARISON OF CONFEDERATE MONEY WITH THE CONTINENTAL CURRENCY IN THE REVOLUTION OF 1776.-TWO CAPITAL CAUSES OF THE DEPRECIATION OF THE CONFEDERATE MONEY.-THE INFLUENCE OF SPECULATION.HOW THE ENGROSSERS MANAGED IN RICHMOND.-SUMMARY OF THE MISMANAGEMENT OF THE CONFEDERATE FINANCES.

GETTYSBURG and Vicksburg were twin victories for the Federals-twin disasters for the Confederates. They marked the line where the war turned, and the fortunes of the Southern Confederacy declined. The disaster of Vicksburg was a shock to the whole internal economy of the South; and this period of military disaster was coincident with a distress in material resources, in which some men already thought to discover signs of the fatal decay of the Confederacy. Money has been designated as "the sinews of war;" and when it is known that the Confederate currency declined a thousand per cent. on the news of these military disasters, it may well be comprehended what occasions of alarm and anxiety they were. The whole concern of the Confederate finances invites a studious consideration, which may well take place here at a period which affected so much

their virtue and integrity. And the subject is so distinct that, without regard to any particular date of our narrative, we may extend our view of it through the whole period of the war.

THE FINANCIAL SYSTEM OF THE SOUTHERN CONFEDERACY.

The South was in a condition of complete isolation in the war. The laws of finance were less disturbed by extraneous influences than was ever the case in any country of equal extent, population and civilization before. The community consisted of several millions of people, occupying a large territory without a specie circulation, and compelled to establish a thoroughly artificial system of finance adapted to the condition of war. The case was anomalous. Very valuable lessons in finance might be learned from the history of the Confederate system, if space were allowed to trace its development, step by step, throughout its extraordinary career, and to mark the influence which it exerted upon the social condition, the public and private morals, and the fortunes of the Confederacy. It may be said generally that the result of the war was powerfully influenced by the condition of the Confederate finances, as much so as by any other cause.

It is the most striking peculiarity of modern wars that they are conducted chiefly by means of credit in the form of paper issues. The system was inaugurated by Great Britain; and its result is the mammoth debt of the British government. The revolutionary governments of France, as they succeeded each other in the various stages of transition between the autocracy of the Bourbons and the Empire, copied the British example, and created enormous debts which shared the fate of the ephemeral powers which incurred them. All the governments of Europe, with scarcely an exception, now labour under the burden of obligations incurred in expensive wars. In proportion with the facility of public credit, has been the magnitude of the scale on which modern wars have been conducted. And if in America the people have reason to boast of the stupendous magnitude of the armies which they brought into the field, and of the extent and costliness of their military operations, the marvellous exhibition will be found to have been due, not so much to the boundlessness of their resources, as to the lavish and reckless manner in which they employed a credit never before brought into requisition. Nor would it be over-stepping the bounds of truth to say, that the war spirit in either section was fed and stimulated, in a very great degree, by the profits which the heavy public expenditures brought to large classes of persons directly responsible for the war, and connected with its operations. This modern scheme of throwing the burden of debts incurred in war upon the shoulders of posterity has done more to stimulate costly and bloody conflicts between nations and peoples,

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than all the harmonizing influences of modern civilization and Christianity have done to restrain them. Until the system of credit is counterbalanced by some other scheme, by which the persons immediately connected with the public operations shall be impoverished rather than enriched by a state of war, we shall have no occasion to expect the Millennium.

The three most conspicuous examples of the abuse of credit for purposes of war, antecedent to those furnished by the two belligerents in the American conflict, were those of Great Britain, France, and Russia. The debt of the British government at the close of the Napoleonic wars, was eight hundred and eighty-five millions of pounds sterling. In March, 1863, after a lapse of nearly half a century, embracing the costly expenditures of the Crimean war, it had been reduced, by dint of resolute taxation, no lower than the amount of seven hundred and eighty million pounds sterling, or about thirty-nine hundred millions of dollars.

The amount of Assignats issued by the Revolutionary authorities of France, counting all the different series, reached the enormous amount of forty thousand millions of francs.* These were followed by a second species of paper money called Mandates, to the amount of twenty-four hundred millions of francs. The great bulk of both these forms of circulation, amounting 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 which the Bank of England put forth a proportionate amount of its own notes of circulation. It is true that the Exchequer bills issued by government for temporary purposes, went directly 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 different. 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 penalties 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 Encyclopedia.

forty-two thousand millions of francs (in the aggregate of Assignats and Mandates), and continued to decline in value until the whole mass of circulation became utterly valueless. The volume of currency in England, on the other hand, never reached an unmanageable aggregate. The circulating notes of the Bank of England never aggregated quite thirty millions of pounds sterling, or one hundred and fifty millions of dollars. Nor 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 £5 108. to the ounce, or about 1.55 to the unit in gold. We shall see that in the United States, during the war, the greenback dollar sank to the value of 2.85 for one in gold; and that the Confederate 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 circumstance 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 America 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 beginning, 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 currency might have been avoided. As it was, each new demand of the government 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 perpetual efflux of notes of circulation; and no returning influx, to keep up an active demand for them and to sustain their value. The public 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

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ing corporation, having a capital of hundreds 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 circulation 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 efflux. The bank may fail; but this efflux is not relaxed by that fact alone; for the necessity of paying the negotiable paper which it held under discount, will absorb precisely the amount of circulation 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.

Neither 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; while 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 hundred and fifty seven millions, and the supposed amount of the notes of State banks still in circulation, was about eighty millions. The aggregate circulation in the Northern States, therefore, had reached, at the end of the war, the prodigious amount of about nine hundred and fifty millions of