America still shackled …

7-30 Q&A (( Library of Congress, Rare Book and Special Collections Division.)

… by a whole lot of debt

A British publication related the American Civil War debt to the “the safety and expediency of democratic rule.” – especially given a democracy’s aversion to free trade. From The New-York Times May 8, 1865:

THE FINANCIAL PROBLEM IN AMERICA.

From the London Times, April 25.

The war excitement in America being now at an end, the finance question becomes the grand one. During the next three months the most extensive speculative operations of the two hemispheres will depend upon it, and a correct resume of its present position in therefore a critical requirement. On the 31st ult. the United States debt was £473,000,000, of which £290,000,000 bears interest payable in coin, and £105,000,000 consists of currency. Of this total £70,000,000 had been created during the preceding five months, and as there are immense arrears due to the army and in other quarters, and the existing rate of expenditure cannot be immediately stopped, it may be assumed as a moderate estimate that, even supposing everything now to progress quietly toward a general adjustment, the aggregate must on the winding up be raised to at least £550,000,000. At present the portion of debt consisting of currency bears no interest, but it is admitted that a large part of this must be funded, and even if we allow £50,000,000 to be kept out, we have a total of £500,000,000 left, on which, under the most favorable circumstances, it is impossible to calculate that an interest less than six per cent. will have to be paid. The annual burden, therefore, will be equal to that of a three per cent. debt of a thousand millions sterling, or about one-fourth more than that of Great Britain. Thus, supposing the disposition and ability of the people of each country to meet their obligations be the same, the United States would still stand at a great disadvantage. It is next to be borne in mind that the South having been vanquished, more than one-fourth of the population of the rehabilitated Union will be in the position of having to pay interest on a debt created exclusively for their own subjugation, and that this pressure will have to be sustained not only under the suffering occasioned by the destruction of their principal cities and public works, but by the non-recognition of their own property in the shape of Confederate currency and bonds, as well as by the extinction of slave labor, and the consequent peril of results in that respect more or less analogous to those that for a time fell upon our West India Islands. And while one section of the people will have to contribute under these circumstances, the entire Union will, according to English notions, be compelled to struggle under hindrances and disabilities to which even such difficulties would seem light. Although negro slavery is abolished, the Union throughout its whole extent is bound in the shackles of protection and prohibition. The leaders of free trade have been accustomed to paint these as far more destructive to human advancement than any other form of evil that tyranny or selfishness could devise; but the worst shape in which they ever existed in this country was mild in comparison with the fiscal theories now in operation at Washington. Next to these obstacles to the ability to pay, we have to consider the disposition of the people. Of course the natural resources of the United States are such that if the people are prepared to submit to any hardship rather than make default to the public creditor, no mistakes of fiscal or other policy can render them unable to do so. But while it is pleasant to anticipate a course of noble fortitude, we must reason not from sentiment, but experience. Previously to the commencement of the war, five of the thirty-three States of the Union, North and South, had for more then a quarter of a century persisted in the practice of open repudiation, and the total for which this discredit in the eyes of the whole world was deliberately incurred was only about four or five millions sterling. Since the commencement of the war Pennsylvania, the second State in the Union, has distinctly legislated for repudiation by repealing the law under which all her debts were contracted, and by which she was bound to pay interest in coin. In the Western States protests have been put forth that the war debt, having for the most part been raised to promote the gains of the protected manufacturers and contractors of the New-England States, will not be regarded as binding whenever a question on the subject can be discussed, and in New-York the principal and most respectable journals have for weeks past been engaged in pointing out that unless some means can be devised for clearing off the whole debt in two or three years it will certainly be repudiated, since the people will never bear the hopeless continuance of such a weight. Meanwhile, California, whose power and wealth are growing rapidly, wholly ignores all the Federal currency orders, and the Washington government find it prudent not to enforce them. Hence, however much we may desire to feel confidence, it is plain that the prospects of a harmonious determination on the part of Congress for the future to uphold the public credit are not encouraging. It may be urged that the fact of the debt being to a great extent held in small amounts among the American people themselves is favorable, but at least sixty or one hundred millions sterling are held in Europe, and even among the Americans the number of holders compared with non-holders is slight. Already the customs’ duties are inadequate to meet the interest of the proportion if the debt payable in gold, and excise duties and direct taxation of all kinds must not only be continued but greatly increased to supply other wants. It is a peculiar feature of the war that its cessation must be followed, not by lightening, but by a tremendous increase of taxation. Hitherto loans have been obtained for all emergencies, but these must now be discontinued, and in the face of their cessation it is impossible to conceive how the government is to obtain an adequate revenue. All these considerations present themselves, even supposing that henceforth the South is no longer troublesome, that, as far as the internal quiet of the country is concerned, no exceptional expenditure will again be necessary, and that there will be no outlay or armaments to overawe Mexico or Canada. In any case, they form such a combination of trials to be surmounted as has never vet been encountered by any people, and should they be honorably overcome, every friend of civilization will have not merely to rejoice, but to dismiss for the future all fears with regard to the safety and expediency of democratic rule. Hitherto democracies have disappointed their most ardent champions by their uniform and uncompromising hostility to free trade and their proclivities to war; but if the democracy of America now rise to the height of the obligations before them they will set an example of prudence, honesty and self-denial such as the world has never yet witnessed.

Jay Cooke on stimulating subscriptions to the loan (Library of Congress, Rare Book and Special Collections Division)

From The New-York Times

OUR POPULAR LOAN.; A WONDERFUL WEEK’S WORK. More than Forty Millions of Dollars Taken in Six Days–More than Twenty-eight Thousand Subscribers for Small Sums:

PHILADELPHIA, Sunday, May 7.

The country will hear with pride as well as with surprise, that the voluntary subscriptions of the people to the seven-thirty loan for the six workingdays of the last week amounted to the immense sum of $40,387,000.

The amounts daily subscribed throughout the country and reported to JAY COOKE & CO’s agency, were as follows: May 1, $5,175,900; May 2, $5,231,100; May 3, $7,261,300; May 4, $6,103,200; May 5, $7,457,100; May 6, $9,158,400; total, $40,387,100. The number of fifty dollar, one hundred dollar and five hundred dollar contributions to the above amount was 28,240.

The daily subscriptions of working men and women for the week were in number as follows: May 1, 3,625; May 2, 3,652; May 3, 5,081; May 4, 4,271; May 5, 5,210; May 6, 6,401; total, 28,240.

The largest single subscriptions of Saturday were $700,000 from Philadelphia; $350,000 from the National Bank of the Republic, of Boston; $300,000 from the National Bank of the Metropolis, of Washington; from New-York, the Fourth National Bank, $500,000; from the First National Bank of Providence, $140,000; from the Second National Bank of New-Haven, $100,000; from the First National Bank of Baltimore, $100,000.

You can read a 2012 analysis of American Civil War debt here: the debt crisis was political; the American people were willing to be heavily taxed to pay down the debt.