The New Nation

by Frederic L. Paxson

The coined money did not circulate generally. It was devoted to a part of the business of government, and to the needs of the banks which provided the actual circulating medium. Scattered over all the States, hundreds of state and private banks issued their own notes to serve as money. At best, and in theory, these were exchangeable for gold at par; at worst, they were a total loss; yet as they were, variant and depreciated since the panic of 1857, they were the money of the people when the Civil War began. Before the end of 1861 the banks gave up the pretense of redeeming their notes in coin. The United States Treasury suspended the payment of specie early in 1862, and thereafter for seventeen years the paper money in circulation depended for its value on the hope that it would some day be redeemed.

The needs of the Treasury, in the crisis of suspension, induced Congress to authorize the emission of $150,000,000 of legal-tender paper money. These notes, soon known as the "greenbacks," became the measure of the difference between standard money and coin. Issued at par, they sank in value and fluctuated until in the darkest days of 1864 a dollar in gold could be exchanged for $2.85 in greenbacks. Yet they were called dollars, and the creditor was forced to accept them in payment of his debts. They were themselves a forced loan, borrowed by compulsion from the people, and constituting $433,000,000 in the total debts of the United States in 1865.

The greenback element in the national debt threatened the integrity of the whole. Should redemption take place at par, and at once, the credit of the United States could not fail to be strengthened. But should the greenbacks be allowed to remain below par, should more of them be issued, or should the United States avail itself of its technical privilege to pay off part of the bonded debt in "lawful money" manufactured by the printing-press, the weakest item in the total might easily depress the whole.

The future of American politics after 1865 was largely determined by the methods through which the revenue had been increased and by the fate of the greenbacks, but more important for the immediate future than either of these was the great fact that in five years the United States had been able to incur its net debt of $2,808,000,000, and had raised in addition more than $700,000,000 through taxation. It was a prosperous Union that emerged from the Civil War, and every region but the South was strong in its conscious wealth.

The whole of the United States had shared in the unusual growth in the period following the Mexican War, in which the new railroads were tying the Mississippi Valley to the seaboard. The census of 1860 reported an increase of 36 per cent in total population in ten years, somewhat unevenly divided, since the Confederate area had increased but 25 per cent, as compared with 39 per cent in the North and West, yet large enough everywhere to keep up the traditions of a growing population. The growth continued in the next decade, despite the Civil War. It is not to be expected that it should have touched the record of the fifties, for 2,500,000 men were drawn from production for at least three years—the three years in which most of them would have grown to manhood and married, had there been no war. The South, desolated by war, and with nearly every able-bodied white man in the ranks, stood still, with under 9 per cent increase. But the whole country grew in population from 31,443,321 to 38,558,371 (22 per cent), while the North and West, in spite of war, grew 27 per cent,—more than the South had done in its most brilliant decade.

How far the North and West would have gone had they not been hampered by the depression after 1857 cannot be stated. These regions had suffered most from the panic, since in them railroads and banks, factories and cities, and all the agents of a complex industrial organization had been most active. The industrial disturbance had disarranged for the time the elaborate Northern system. The simpler South, with its staple crops, its rural population, and its few railways, had suffered less. Southerners before the war had seen in their immunity from the effects of panic a proof of their superiority over other social orders; they had misread the times and prophesied the disintegration of the industrial organization of the North.

The South seceded before the rest of the United States emerged from the panic period. In the next four years the treasury receipts show the resources of the loyal States. Industry, recovered from its depression, went ahead unnoticed in the noise of war, yet little impeded by the fact of war.

Communication by rail brought the most significant of the single changes into the Northern States. Before the panic of 1857 the trunk-line railways had completed their net of tracks between the Mississippi and tidewater. Nearly ten thousand miles had been built in the Old Northwest alone in the ten preceding years. But the effect of this on business, certain to come in any event, was not seen until secession closed the Mississippi to the agricultural exports of the Northwest. For a part of 1861 and 1862 traffic piled up along the young railroads extending from St. Louis and Chicago to Buffalo, Pittsburg, New York, and Philadelphia. But before 1863 these lines, notably the New York Central, the Erie, and the Pennsylvania, had adapted themselves to the trade which the South had thrust upon them; and never since secession has New Orleans regained her place as the great outlet of the Mississippi Valley.

The fundamental change in the direction of its trade added to the prosperity of the North. In the additions to the transportation system, made to accommodate the new business, new railroads were less prominent than second tracks, bridges, tunnels, and terminal facilities. The experimental years of railroading had passed before most of the lines learned the importance of city terminals. The growth of the cities and the rising price of land made the attainment of these more difficult than they need have been, while city governments and their officials learned that illicit profits could be made out of the necessities of the railroads. The great lines, active in the development of their plants, and consolidating during the sixties to get the benefits of unified management, added to the bustle in the cities in the North.