Great Britain and the American Civil War

by Ephraim Douglass Adams

By 1863 it had become exceedingly difficult, owing to the blockade, for the Government at Richmond to transmit funds to its agents abroad. Bullock, especially, required large amounts in furtherance of his ship-building contracts and was embarrassed by the lack of business methods and the delays of the Government at home. The incompetence of the Confederacy in finance was a weakness that characterized all of its many operations whether at home or abroad[1048] and was made evident in England by the confusion in its efforts to establish credits there. At first the Confederate Government supplied its agents abroad with drafts upon the house of Fraser, Trenholm & Company, of Liverpool, a branch of the firm long established at Charleston, South Carolina, purchasing its bills of exchange with its own "home made" money. But as Confederate currency rapidly depreciated this method of transmitting funds became increasingly difficult and costly. The next step was to send to Spence, nominated by Mason as financial adviser in England, Confederate money bonds for sale on the British market, with authority to dispose of them as low as fifty cents on the dollar, but these found no takers[1049]. By September, 1862, Bullock's funds for ship-building were exhausted and some new method of supply was required. Temporary relief was found in adopting a suggestion from Lindsay whereby cotton was made the basis for an advance of £60,000, a form of cotton bond being devised which fixed the price of cotton at eightpence the pound. These bonds were not put on the market but were privately placed by Lindsay & Company with a few buyers for the entire sum, the transaction remaining secret[1050].

In the meantime this same recourse to cotton had occurred to the authorities at Richmond and a plan formulated by which cotton should be purchased by the Government, stored, and certificates issued to be sold abroad, the purchaser being assured of "all facilities of shipment." Spence was to be the authorized agent for the sale of these "cotton certificates," but before any reached him various special agents of the Confederacy had arrived in England by December, 1862, with such certificates in their possession and had disposed of some of them, calling them "cotton warrants." The difficulties which might arise from separate action in the market were at once perceived and following a conference with Mason all cotton obligations were turned to Fraser, Trenholm & Company. Spence now had in his hands the "money bonds" but no further attempt was made to dispose of these since the "cotton warrants" were considered a better means of raising funds.

It is no doubt true that since all of these efforts involved a governmental guarantee the various "certificates" or "warrants" partook of the nature of a government bond. Yet up to this point the Richmond authorities, after the first failure to sell "money bonds" abroad were not keen to attempt anything that could be stamped as a foreign "government loan." Their idea was rather that a certain part of the produce of the South was being set aside as the property of those who in England should extend credit to the South. The sole purpose of these earlier operations was to provide funds for Southern agents. By July, 1862, Bullock had exhausted his earlier credit of a million dollars. The £60,000 loan secured through Lindsay then tided over an emergency demand and this had been followed by a development on similar lines of the "cotton certificates" and "warrants" which by December, 1862, had secured, through Spence's agency, an additional million dollars or thereabouts. Mason was strongly recommending further expansion of this method and had the utmost confidence in Spence. Now, however, there was broached to the authorities in Richmond a proposal for the definite floating in Europe of a specified "cotton loan."

This proposal came through Slidell at Paris and was made by the well-established firm of Erlanger & Company. First approached by this company in September, 1862, Slidell consulted Mason but found the latter strongly committed to his own plans with Spence[1051]. But Slidell persisted and Mason gave way[1052]. Representatives of Erlanger proceeded to Richmond and proposed a loan of twenty-five million dollars; they were surprised to find the Confederate Government disinclined to the idea of a foreign loan, and the final agreement, cut to fifteen millions, was largely made because of the argument advanced that as a result powerful influences would thus be brought to the support of the South[1053]. The contract was signed at Richmond, January 28, 1863, and legalized by a secret act of Congress on the day following[1054]. But there was no Southern enthusiasm for the project. Benjamin wrote to Mason that the Confederacy disclaimed the "desire or intention on our part to effect a loan in Europe ... during the war we want only such very moderate sums as are required abroad for the purchase of warlike supplies and for vessels, and even that is not required because of our want of funds, but because of the difficulties of remittance"; as for the Erlanger contract the Confederacy "would have declined it altogether but for the political considerations indicated by Mr. Slidell[1055]...."

From Mason's view-point the prime need was to secure money; from Slidell's (at least so asserted) it was to place a loan with the purpose of establishing strong friends. It had been agreed to suspend the operations of Spence until the result of Erlanger's offer was learned, but pressure brought by Caleb Huse, purchasing agent of the Confederacy, caused a further sale of "cotton warrants[1056]." Spence, fearing he was about to be shelved, became vexed and made protest to Mason, while Slidell regarded Spence[1057] as a weak and meddlesome agent[1058]. But on February 14, 1863, Erlanger's agents returned to Paris and uncertainty was at an end. Spence went to Paris, saw Erlanger, and agreed to co-operate in floating the loan[1059]. Then followed a remarkable bond market operation, interesting, not so much as regards the financial returns to the South, for these were negligible, as in relation to the declared object of Slidell and the Richmond Government--namely, the "strong influences" that would accompany the successful flotation of a loan.

Delay in beginning operations was caused by the failure to receive promptly the authenticated copy of the Act of Congress authorizing the loan, which did not arrive until March 18. By this contract Erlanger & Company, sole managers of the loan, had guaranteed flotation of the entire $15,000,000 at not less than 77, the profit of the Company to be five per cent., plus the difference between 77 and the actual price received, but the first $300,000 taken was to be placed at once at the disposal of the Government. The bonds were put on the market March 19, in London, Liverpool, Paris, Amsterdam and Frankfurt, but practically all operations were confined to England. The bid for the loan was entitled "Seven per Cent. Cotton Loan of the Confederate States of America for 3 Millions Sterling at 90 per Cent." The bonds were to bear interest at seven per cent. and were to be exchangeable for cotton at the option of the holder at the price of sixpence "for each pound of cotton, at any time not later than six months after the ratification of a treaty of peace between the present belligerents." There were provisions for the gradual redemption of the bonds in gold for those who did not desire cotton. Subscribers were to pay 5 per cent. on application. 10 per cent. on allotment, 10 per cent. on each of the days, the first of May, June and July, 1863, and 15 per cent. on the first of August, September and October.

Since the price of cotton in England was then 21 pence per pound it was thought here was a sufficiently wide margin to offer at least a good chance of enormous profits to the buyer of the bonds. True "the loan was looked upon as a wild cotton speculation[1060]," but odds were so large as to induce a heavy gamblers' plunge, for it seemed hardly conceivable that cotton could for some years go below sevenpence per pound, and even that figure would have meant profit, if the Confederacy were established. Moreover, even though the loan was not given official recognition by the London stock exchange, the financial columns of the Times and the Economist favoured it and the subscriptions were so prompt and so heavy that in two days the loan was reported as over-subscribed three times in London alone[1061]. With the closing of the subscription the bonds went up to 95-1/2. Slidell wrote: "It is a financial recognition of our independence, emanating from a class proverbially cautious, and little given to be influenced by sentiment or sympathy[1062]." On Friday, March 27, the allotment took place and three days later Mason wrote, "I think I may congratulate you, therefore, on the triumphant success of our infant credit--it shows, malgré all detraction and calumny, that cotton is king at last[1063]."

"Alas for the King! Two days later his throne began to tremble and it took all the King's horses and all the King's men to keep him in state[1064]." On April 1, the flurry of speculation had begun to falter and the loan was below par; on the second it dropped to 3-1/2 discount, and by the third the promoters and the Southern diplomats were very anxious. They agreed that someone must be "bearing" the bonds and suspected Adams of supplying Northern funds for that purpose[1065]. Spence wrote from Liverpool in great alarm and coincidently Erlanger & Company urged that Mason should authorize the use of the receipts already secured to hold up the price of the bonds. Mason was very reluctant to do this[1066], but finally yielded when informed of the result of an interview between Spence, Erlanger, and the latter's chief London agent, Schroeder. Spence had proposed a withdrawal of a part of the loan from the market as likely to have a stabilizing effect, and opposed the Erlanger plan of using the funds already in hand. But Schroeder coolly informed him that if the Confederate representative refused to authorize the use of these funds to sustain the market, then Erlanger would regard his Company as having "completed their contract ... which was simply to issue the Loan." "Having issued it, they did not and do not guarantee that the public would pay up their instalments. If the public abandon the loan, the 15 per cent sacrificed is, in point of fact, not the property of the Government at all, but the profits of Messrs. Erlanger & Co., actually in their hands, and they cannot be expected to take a worse position. At any rate they will not do so, and unless the compact can be made on the basis we name, matters must take their course[1067]."

In the face of this ultimatum, Spence advised yielding as he "could not hesitate ... seeing that nothing could be so disastrous politically, as well as financially, as the public break-down of the Loan[1068]." Mason gave the required authorization and this was later approved from Richmond. For a time the "bulling" of the loan was successful, but again and again required the use of funds received from actual sales of bonds and in the end the loan netted very little to the Confederacy. Some $6,000,000 was squandered in supporting the market and from the entire operation it is estimated that less than $7,000,000 was realized by the Confederacy, although, as stated by the Economist, over $12,000,000 of the bonds were outstanding and largely in the hands of British investors at the end of the war[1069].