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How economic strategies helped to determine the victor in America's Civil War


The war in Ukraine underlines the importance of economic power. Russia has a weak economy where a lack of funds and corruption apparently caused embarrassing slowdowns for their previously respected military. Western nations have responded by flexing their economic power, cutting off Russia from one source of income after another. Money always matters in war.

Roger Lowenstein wrote "Ways And Means: Lincoln And His Cabinet And The Financing Of The Civil War," which faces on the rebellion in the United States beginning in 1861. At that time, the federal government was small. Its people were lightly taxed. Many basics of national finance did not exist. There wasn't even a national paper currency. Government services were primitive.

ROGER LOWENSTEIN: You know, we basically had a Postal Service. We had a very small Army, mostly in scattered forts out in the West, and basically nothing else. That old debate you learn about in school between Hamilton and Jefferson - well, Jefferson had won. There was basically no central government until Lincoln and the Civil War came along.

INSKEEP: And then this situation arises in which Southern states try to secede from the Union because they want to uphold slavery. Northern states vowed to fight that, to contest that. And you point out there is an economic strategy to war. You have to pay for the war. It's very expensive. What was the economic strategy of each side?

LOWENSTEIN: So the North really realized that the old system, which was a few private banks lending gold to the government, wouldn't do anymore. They sold the bonds to a vast number of just ordinary citizens, the predecessor of the war bond campaigns in latter world wars. They adopted an income tax so the government would have real revenue, which gave investors faith in the government. And they also printed a new national currency, the greenback, a precursor of the fiat money, the paper bills we carry in our wallets today. And it worked very well. The Lincoln government spent more money than had been spent in all the years in the United States combined up to that time, and they came out of the war remarkably in stronger financial condition than they had entered it.

The South had a completely different philosophy. They were against strong federal government. That was part and parcel of the reason why they had seceded. They refused to tax. Remarkably, their citizens were very willing to die for the Confederacy. But they weren't willing to be taxed by it. They didn't have any of the national supports that the Union did. And they went broke very quickly. They had horrendous inflation up to 80%, 100% and ultimately to 9,000% inflation, if you can imagine that. And to quote one senior Treasury official, we weren't whipped in the battlefield. We were whipped in the Treasury Department.

INSKEEP: Did people in the North resist this economic transformation?

LOWENSTEIN: They were remarkably tolerant of it, I think, particularly to taxation. Salmon Chase, secretary of the Treasury, was extremely reluctant to levy taxes. Everybody knew that Americans hated taxes. They were among, if not the most lightly taxed people in the developed world. But they also knew they needed taxes. And they loved the greenback because this was money that was accepted everywhere.

Previous to the Civil War, every bank in every state issued its own notes, and nobody knew what one state's money was worth in another state. It was a terribly cumbersome system. And to some people's surprise, the greenback was extremely popular. In fact, it even circulated in the South, much to the great chagrin of Jefferson Davis and the Confederate officials. And then, of course, people subscribed to the bonds in tremendous volumes. And they really became truly an extra army, these just ordinary citizens ponying up their savings, which was a new idea - investing. And so I think people were remarkably accepting of these changes.

INSKEEP: Did Lincoln then establish the system that the United States used to establish world influence and win World War I and World War II? - that we've got a big country, big economy. We can raise a large army, and we can pay for it.

LOWENSTEIN: Lincoln said in the very beginning, the side with the most resources will win the war. He was extremely focused on that, even though he left most of the details to Chase. You know, he wanted modernity. He wanted people in the what we now call the Midwest to have roads and railroads and transportation. He wanted people to be able to go to school - publicly funded schools as he had not been able to. He wanted a credit system that was good throughout the country. He talked throughout the war that it was important to continue the country's economic progress. And he would talk about that in what we now call the State of the Union, his annual addresses - how important it was to keep the prosperity of the country growing even as we were fighting.

INSKEEP: And the country was prosperous, or at least the North was prosperous, even as the war went on?

LOWENSTEIN: It was. There was a brief recession in the beginning. Obviously, trade with the South was cut off. Debts weren't paid. But come 1862 and certainly 1863, the North became quite prosperous. Immigration throughout the war, and particularly in the latter half, was quite vigorous, which meant that the people who have been going off to war were replaced in farms and factories by immigrants. There were fresh loads of minors going to the West and new mines being excavated. And Lincoln was very excited about that. He was extremely excited about the transcontinental railroad. In fact, he said that he couldn't wait till it was built. And after his presidency, he hoped to ride it to California.

INSKEEP: Of course, he didn't live to do that.

LOWENSTEIN: He didn't get there.

INSKEEP: What do you think about bringing out this book now as the United States, a great economic power, is effectively waging war against Russia using economic means purely? There's not even a military involved directly.

LOWENSTEIN: Well, I think there's quite a comparison, Steve. We're facing Vladimir Putin, who obviously bet that his energy weapon would be enough to frighten and maybe completely shut down any meaningful resistance from the West. And it seems if, I'm not being too optimistic, that Putin overplayed the - his energy hand, or at least certainly the Ukrainians are resisting, and the West has responded with very strong sanctions.

A very similar thing happened in the South. They thought that because they produced three-quarters of the world's cotton and cotton was the heart of the textiles industry, which was the heart of the industrial revolution for its first half century, that they were immune. The senator from South Carolina, James Hammond, said shortly before the war, cotton is king. No one dares lay a finger on the South. And Southerners believe that. And they thought that when they seceded, the North wouldn't go to war against them because the North needed their cotton and that if the North did, Europe would come in and intervene because the mills of England and France also needed their cotton. Of course, we know that the South really overplayed their hand. None of what they counted on came to pass. But they had the same sort of insular mentality, I think, that we see in Putin today of this commodity producer thinking that they really are king and they really are immune.

INSKEEP: The new book by Roger Lowenstein is called "Ways And Means: Lincoln And His Cabinet And The Financing Of The Civil War." Thanks so much.

LOWENSTEIN: Steve, always a pleasure.

(SOUNDBITE OF YUSUF SONG, "TO BE WHAT YOU MUST") Transcript provided by NPR, Copyright NPR.