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The currency and speculation

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the paper-money of the North gained a foothold. Legislation and popular appeals were helpless against the invasion of the enemies' currency, which circulated freely and became more and more acceptable as the Confederate currency declined in value. Even the government found it advantageous to handle it, and was not above speculating in it, though the law strictly forbade individuals from dealing in United States currency. The utter collapse of the Confederate currency is further evidenced by the general return to barter, with a view to escaping the hopeless confusion due to the paper medium of exchange, just as the produce loans and taxes in kind had similarly aimed at avoiding the difficulty. Towards the end of the war people generally cut themselves loose from the paper-money system, and bought and sold in kind, just as they had been paying their taxes and subscribing to government loans in produce.

The deficiencies of transport and communication produced local differences in the prices of Southern commodities. Moreover, the varying fortunes of the Confederacy and the sinking of its credit produced great fluctuations in those prices as expressed in the paper currency, with a general and rapid upward tendency. On the basis of these violent price movements was developed a form of wild speculation, as uncharacteristic of the non-commercial traditions of the South as it was typical of all periods of deranged currency, such as the years previous to 1873 in the United States, or the period of the French Revolution, or the later experience of Austria and Italy. As a result of the constantly rising prices of goods, it was greatly to the disadvantage of the noteholder to keep his notes. He was forced to buy goods with them in. order to avoid loss. Everybody became a speculator. It seemed impossible to lose on the rising market. The rising scale of prices made speculation inevitable; it was not primarily the speculators who made prices rise. However, they were constantly reproached for enhancing prices. It was claimed that they were depressing the value of the currency by their operations, that they were draining specie from the country, and that they were spreading disaffection and discrediting the government. Legislation, especially in the individual States, was aimed at curbing speculation, but with no results. Speculation in specie was particularly odious to the legislatures; and futile attempts were made in the South, as in the North, to prevent what was a necessary outcome of the deranged currency. In fact, the government itself was irresistibly driven to speculating in gold. Army and Treasury officers who held public funds in paper-money were easily tempted to take advantage of the fluctuating gold premium and try to enlarge their holdings.

The prices of cotton and tobacco were least affected by the redundancy of the currency. After the middle of 1861 the price of cotton, reduced to specie value, never rose above the 1860 level, but fell far below it. At the same time the price of cotton in the North and in

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Results of the blockade

[1861Europe doubled before the end of 1861, quadrupled by the end of 1862, and during the last two years of the war reached five and six times the figure at which it had stood in 1860. This divergence between North and South in respect of the price of cotton and tobacco put a great premium upon attempts to export these two articles, produced in large amounts in the South and urgently demanded in the North and in Europe. On the other hand, large profits rewarded the efforts of the venturesome merchant who exchanged these exports for foreign goods, such as coffee, bacon, and war materials, imported these, and sold them in the South where, as we have seen, the prices were driven up to exorbitant heights. The efficiency of the Federal blockade prevented such trade from reaching any large dimensions. The blockade of the Southern ports was declared in April, 1861, and was at once carried out by the United States navy. Exports and imports were soon cut down to an insignificant figure; but, small as was the quantity of goods imported and exported, the profits of the trade that eluded the watchful blockading fleet were enormous, and enriched a considerable number of merchants. Fast vessels of light draught were equipped to carry cotton, especially from Charleston and Wilmington, to some port in the West Indies, for instance to Nassau or Havana, where the cargoes were transshipped to larger vessels, reached England, and were exchanged for so-called blockade goods which returned to the Southern ports. The frequent captures by the Federal fleet did not wipe out the large profits of such transactions. The Confederate government itself was drawn into these ventures. During the first two years of the war it shipped 31,000 bales of cotton to Liverpool. It engaged steamships for the purpose, and joined with individual speculators in trading ventures exactly as the Continental Congress had done nearly a century before. The individual States, too, engaged in blockade-running, especially North and South Carolina, Georgia, and Texas. This practice led to inevitable conflicts between the central and State governments, and between the governments and the individual traders.

The profitable nature of this contraband trade acted also as a stimulus to extensive commercial relations with the North. Along the borders of the Confederate States, in Virginia and Louisiana, and on the Mississippi, such an exchange of cotton and tobacco for salt, coffee, and similar articles from the North was at times quite brisk, and had to be winked at by the military authorities, although in law it constituted a treasonable act. In fact, there was a constant conflict of motives throughout the war, one favouring free commercial intercourse with other countries, another leaning to restrictions on it. At the outset a free-trade policy was pursued, on the theory that the South had everything to gain and nothing to lose by attempting to get its supplies from abroad. Subsequently the government policy played into the hands of the Federal blockaders by restricting the exportation of cotton and the

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Results of the blockade

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importation of foreign articles. So with the fairly brisk trade carried on over the Mexican border. At first it was encouraged as a means of securing a foreign supply of war materials; but when it grew more hazardous and therefore more profitable, in consequence of the Federal troops establishing themselves in that neighbourhood, a policy of restriction was adopted. The government was anxious to share in the profits or to monopolise the trade. Just as was the case during the Revolutionary War, laws were passed to forbid the exportation of cotton and the importation of foreign supplies; but the government was allowed to make exceptions in cases where it was admitted by the individual trader to a share in the profits. Another motive that entered into this restrictive policy was the hope of forcing the European governments to recognise the Confederacy, by creating a scarcity of the much-needed cotton. The embargo, however, proved ineffective for this purpose, and merely helped the Federal blockade.

The operations of the Federal fleet contributed as effectively, though not as obviously, as did those of the army to the overthrow of the Confederacy. The blockade forced an economic isolation upon the South which weakened her power of resistance. Her resources were much inferior to those of the North, and, owing to the blockade, they could not be effectively employed. The paper-money policy undoubtedly also contributed to that end, and sapped the industrial strength of the Confederacy. The Civil War represented for the South a conflict with overwhelming odds. The South contained a population only about half as large as that of the North. It had no large trade centres, except New Orleans and Charleston; and the more important of these two cities came into the possession of the Federal authorities a year after the opening of hostilities. The South had no manufactures comparable with the enormous industrial resources of the North; and its railway system was inferior. That the war lasted as long as it did was due to the brilliant generalship of the Southern military leaders, pre-eminently of General Lee, and to the heroic efforts made by a devoted people to avoid the inevitable result. It may be doubted whether any other people has ever made such sacrifices for any cause. The destruction of wealth by friend and foe was unparalleled; and the South was left in a state of impoverishment from which it is still but slowly recovering.

CHAPTER XX

POLITICAL RECONSTRUCTION

(1865-1885)

THE war of secession altered profoundly the governmental ideals and methods, the economic life, and the whole social structure of the United States. Long before Lee's surrender it had become evident to all intelligent men that a return to the old conditions was impossible; and upon the final collapse of the Confederacy the question at once became pressing as to what should be done to reconstruct the government and establish it upon enduring foundations. The problem was threefold. In the forefront stood the questions presented by the conquered Southern States, whose condition in 1865 seemed appalling. Four years of desperate exertions to raise and equip armies, the ravages of campaigns and raids, the effect of a merciless blockade, and the emancipation of slaves by the Federal armies, had reduced the Southern people to bankruptcy. Mills, railways, and bridges were destroyed; banks were empty; capital had vanished. The temper of the defeated people, in such circumstances, could not be other than bitter and despairing. Open resistance was at an end; but a deep-seated hatred of the North, whether recklessly avowed or veiled by a sullen submission, animated most of the Southern leaders. They had staked all and lost. Here and there men of a different cast of mind advocated making the best of a bad plight, and turned from public affairs to the task of restoring their ruined plantations; but, whether resigned or resentful, all alike retained a fervent faith in the justice of their lost cause. How these communities of ex-Confederates were to be restored to a participation in the Federal government without severely straining its operation was the first question confronting the North.

A still more perplexing part of the Southern difficulty was presented by the four millions of negroes. The greater number of these had gained their freedom through the Emancipation Proclamation and the

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Northern and Southern problems

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Confiscation Acts; but the thirteenth amendment, abolishing slavery, had not yet been ratified, and apparently could not be so without the votes of some of the seceded States. The freedmen in 1865 were an element in the South utterly unlike anything previously dealt with by the country. Entirely ignorant, untrained, as a rule, except for servile occupations, lacking any civilised customs of domestic or public morality, and devoid of economic instincts, the former slaves formed an alien race fitted in no single respect for citizenship. Childlike in mind and habits, they interpreted their new liberty to mean simply release from restraint; and they began in 1865 to wander away from their home-plantations, to enjoy the delights of idleness, to indulge any thievish or immoral propensities to the full, and to work no more and no longer than they found agreeable. What should be done for these unfortunate people? Should the task of controlling them and attempting to improve their lot be left to their former masters, or should it be assumed by the Federal government? For the time being, at the close of hostilities, military supervision answered these questions. Federal armies kept order, and Federal generals exercised an unlimited authority over the Southern people; while a Freedman's Bureau, also under military direction, devoted endless time and patience and large sums of money to protecting, helping, and even feeding the negroes. But this system

was obviously temporary: what was to follow it as a permanent policy on the part of the North?

A further complication in the problem of Southern reconstruction was the uncertainty as to the legal basis for any action proposed. The Federal Constitution made no provision for secession or restoration; and the powers of the central government over the conquered communities, which from the necessities of the case ought to be as wide as possible, were left to be inferred from a few meagre clauses open to various interpretations. Military control for an unlimited period, which would have been the obvious policy for a European government, was impossible under such a constitution as that of the United States. Moreover the habit of legal action and constitutional procedure was ingrained in the American mind; and the moment the clash of arms ceased this tendency asserted itself. The only possible way of attacking the Southern problem, in the opinion of most American leaders, was by some legal, constitutional, federal process.

Scarcely less difficult than the Southern question appeared the financial problem. It involved the reduction of heavy war taxes, the readjustment of the revenue, the refunding of an enormous debt, and the restoration of an inflated and depreciated paper currency to a specie basis. During the war the country had become used to extravagant expenditure by the Federal and State governments, and to reckless speculation; now, on the arrival of peace, it was at the height of an era of industrial and agricultural expansion. Could the return to