The following is an excerpt taken from Bonds of War: How Civil War Financial Agents Sold the World on the Union by David K. Thomson, which demonstrates how Europe, and ultimately all corners of the globe, grew deeply interdependent on American finance during, and in the immediate aftermath of, the American Civil War.
More than any other financial instrument, the sales of Northern bonds during the war and Reconstruction offers a window into an evolving financial world. The war fostered a new world of American investment banking, where firms came to focus on specific investments such as government bonds and later railroad stock while also underwriting major bond and rail issues. This represented a demonstrable shift away from the joint merchant/broker world that prevailed before the war. This was also a marked deviation from the antebellum world of American merchant finance, in which bonds and stocks comprised part of a larger portfolio that relied on the trade of goods. Such actions paved the way for more widespread investment beyond the war and even into popular culture. The world of popular fiction and things like Wall Street board games reveal the financial hold that gripped the Northern community at large as a result of Civil War finance. Modern American finance—from highbrow financiers to everyday speculators—grew out of government-issued bonds and greenbacks. The world of finance and speculation that emerged in Reconstruction and carried forward into the latter part of the nineteenth century foreshadowed the popular investments of World War I and corporate stock ownership of the 1920s. In short, modern American finance materialized out of the Civil War.
But if the story of United States debt is rooted on one side of the Atlantic, it is equally important to understand how those outside the country viewed and interacted with the debt. The story of Civil War–era finance contains transatlantic, even global dimensions. The literature on Civil War–era finance has long told a story of a massive repatriation of American debt from major financial powers such as Britain and France. These nations, closely tied to the cotton-growing American South, wanted to err on the side of caution as they attempted to remain neutral in an increasingly expanding conflict. While some foreign investors did shift their money from American to European financial instruments at the war’s immediate outset, the interest in American bonds quickly returned. Investors exhibited such interest not only among the normally cautious financial powerhouses of London and Paris, but increasingly in the more pivotal markets of Amsterdam and the German states. Amsterdam had long been a financial center, but its level of interest in American debt during the war and beyond far exceeded its antebellum investment. Furthermore, Frankfurt became a vital financial center for American debt during the war—faith and kinship networks serving as key conduits for this financial exchange. In the case of Frankfurt, financiers in this city also leveraged anticompetitive market practices and a relative lack of transparency to fuel bond sales by major banking houses. The size and scope of investment during the war reveals the diplomatic and transatlantic elements of the war itself. Whereas histories of the Civil War focus on the neutrality of European nations and the inability of either the Union or Confederacy to raise meaningful funds through direct foreign loans (with the exception of the Confederate Erlanger Loan), they miss the significance of private foreign investment in the Union bond issues.
In the Reconstruction period American bond sales spread across the globe, reaching every inhabited continent by the late 1860s. In doing so, these sales reflected a shift in American investment banking. American banks bypassed traditional relationships with the long-established banks of London and created relationships in other established as well as emerging markets. Networks based on faith and familial relations were essential to understanding the shift in international financial dynamics that came about during and after the Civil War. By 1869, half of all American national debt could be found abroad (mostly in Europe) and among a widespread group of financiers and their respective clients, revealing a globalization of the American financial world and a greater integration with global financial markets. This shifted the financial balance in American capitalism moving forward. American banks no longer served at the behest of London banks alone, but projected a newfound confidence and financial weight that underpinned the world’s strongest economy by the turn of the century. In the end, these actions represented an important moment in the history of the fiscal state during a particular era of financial globalization.
Bonds of War examines how, precisely, these bonds were marketed and sold, how the bond markets evolved domestically and overseas, and with what long-term consequences for American and world financial systems. Additionally, it uncovers what the bond drives suggest about the version of the war the Union public was willing to buy and to buy into. Following tremendous difficulty on the part of the Treasury to raise capital in the wake of the Union defeat at Bull Run in July 1861, Philadelphia financier Jay Cooke received exclusive rights from Secretary of the Treasury Salmon Chase to sell the $500 million “5-20” bond issue of March 1862. This subscription met with wild success and the federal government followed up with the 1865 “7-30” Treasury note issue (with a bond convertibility option) of $800 million. Because these bond issues were critical to Union finance, Cooke’s Philadelphia bank is often at the center of this study. However, this is not a biography of Cooke. Rather, it extends to the thousands of smaller agents and subagents who canvassed the North, the western territories, and even parts of the Confederacy to market these bonds to millions of subscribers by war’s end.