“The Sinews of War”

September 28, 1861

Frank Bellew

“The Sinews of War”

Anglo-American Relations; Civil War, Finances; Sports and Recreation; Symbols, John Bull; Symbols, North; Wars, American Civil War;

Chase, Salmon P.;

No 'Places' indexed for this cartoon.

Jonathan North. "There, John Bull, what d'yer think of that?"

John Bull. "Lor' bless me, my dear Fella! I 'ad no idea you were so strong!"

Economic strongman John Bull, the personification of Great Britain, whose cricket bat reads "Bank of England" and dumbbell is labeled "Manchester" and "Birmingham" (after Britain's leading industrial cities), is astonished by Jonathan North's impressive muscle in the guise of a $50 million loan.  At the time of this cartoon, the Union states were trying desperately to finance their military effort in the American Civil War, and were hoping to induce Great Britain and other European powers to grant loans to the United States government.  Here, the symbol of the Northern states (whose name is adapted from Brother Jonathan, a precursor to Uncle Sam) reveals the loan that American banks had grudgingly supplied to the federal government.  The show of muscle, however, was not enough to convince the Europeans, who refused the American loan request.

The man primarily responsible for putting the Union states on firm financial footing was Treasury Secretary Salmon P. Chase, who formerly sat on the board of several Ohio banks and served as the attorney for the Cincinnati branch of the Bank of the United States.  When he assumed office in March 1861, the federal government had only $3 million against a debt of $65 million, and the nation's credit had been devastated by an economic depression in 1857-1858 and the secession crisis of 1860-1861.  The treasury secretary had the legal authority to issue up to $40 million in government bonds and treasury notes.  With the onset of the war in April 1865, Chase initially reacted with restraint, raising $16 million through the sale of bonds and notes.  

In late June, Chase held a strategy meeting with members of the Senate Finance Committee and the House Ways and Means Committee, to whom he distributed a draft of his upcoming report to Congress.  The treasury secretary estimated $318 million in military expenditures for the fiscal year 1861-1862 (six times higher than the previous year).  He proposed raising $240 million through loans, $50 million in tax increases, and the rest by tariffs and other means.  Chase requested congressional authority to finance a $100 million loan with three-year treasury notes bearing a 7.3% annual rate of interest, plus a $50 million loan (if necessary) with one-year notes at 3.65% interest (exchangeable with the three-year notes).  When Congress convened in early July, Chase's requests were enacted without serious debate.  Congress also levied an income tax, which he had not sought.

After the Battle of Bull Run on July 21, 1861, Chase and the rest of the country realized that the Civil War was not going to be the brief conflict that most originally assumed.  The Union retreat at Bull Run undermined confidence in the Lincoln administration among the already cautious bankers of the North.  One financier, however, was more far-sighted than most of the financial community at the time.  He was Jay Cooke, a 31-year-old banker in Philadelphia, whose widespread advertisements marketed the federal government's securities in small denominations ($50-$200) to the general public.  By June 1863, Cooke had sold over $320 million worth of government bonds.  The young banker turned down a chance to serve as the assistant treasurer in Philadelphia, but did accept a position as one of the subscription agents.

On August 11, 1861, Chase met in New York City with the nation's leading bankers just as news arrived that much of Missouri had fallen under Confederate control.  Undeterred, the treasury secretary presented his plan to raise $150 million in gold specie, an amount that flabbergasted the bankers.  Chase proposed that the banks buy the one- to three-year, 7.3% treasury notes for gold.  The bank gold reserves would then be replenished through resale of the notes to the public and the government's payment of military expenses.  The banks only had $63 million in gold reserves on hand, but Chase would not budge.  Feeling pressured to accept the loan, the bankers agreed to make three $50 million installment payments (the first is symbolized in the cartoon). 

Using Cooke's marketing tactics, Chase distributed an "Appeal on Behalf of the National Loan" to inspire patriotic participation in the bond sales, and wrote personal notes to editors across the North, urging them to endorse the national loan.  Cooke placed advertisements and favorable editorials in many of Pennsylvania's newspapers, and was taking in $100,000 a day by early September.  The gold reserves of most banks, however, were not being replaced as quickly as hoped (due largely to red tape in military appropriations), but Chase cajoled them to make the second $50 million installment payment of gold specie in late September.  The importance of the national loan was magnified a month later when Chase received word from his special envoy, August Belmont, that British and French bankers emphatically refused to issue loans to the United States government.

Robert C. Kennedy

“The Sinews of War”
July 14, 2024

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