The second battlefield of the American Civil War
In the American Civil War, the North won an overwhelming victory, abolished the black slave system, and completely changed the fate of the United States. But what you may not expect is that behind this war is actually a financial contest.
In the early days of the war, the northern army was losing steadily, and the war funds were in a hurry. The northern government must raise a large sum of money in a short period of time, otherwise the military expenditure will not be sustainable. The Treasury Department decided to issue $500 million in treasury bonds. However, the ideal is full of reality and the reality is skinny. The military defeats have greatly reduced the credit of the northern government, and no bankers are willing to subscribe for government bonds. A few months later, only 28% of the $500 million bond has been subscribed. The army cannot even pay its salaries, and morale is very low.
At this time, a banker named Jay Cook stepped forward. He devised a financing package that changed the traditional thinking of raising money to the rich and instead sold bonds to ordinary American households. This program includes the following:
Lowering the investment threshold. In order to adapt to the purchasing power of ordinary households, the denomination of bond issuance was reduced to $50 to ensure that ordinary people can also participate.
Carpet propaganda. Cook is well aware of the importance of marketing. He employs a large number of financial intermediaries to go deep into the rural areas of the central and western United States to vigorously promote it.
Concept shaping. Both the media and the flyers sent a clear message that buying bonds was a “patriotic + investment” win-win move. On the one hand, investors can enjoy the 6% interest on the national debt, and the interest is tax-free; on the other hand, as long as the northern government wins, the price of bonds will rise wildly, and investors are equivalent to sharing the fruits of the country’s victory with a small amount of money.
The financing plan, which was later to be regarded as the standard, was a huge success. Cook raised $400 million for the northern government within a year, which was quickly converted into food, armaments and medicine, which were sent to the battlefield in a steady stream.
At the same time, the protracted war led to the shortage of funds in the south, the army’s supplies could not keep up, and the combat effectiveness declined. There is a particularly vivid description of this in “Gone with the Wind”: a large number of Confederate soldiers were wounded and defeated on the battlefield, and they wandered to Scarlett’s Tara Manor to seek a living.
The tragic situation of the southern army was a mirror of southern finance, and the defeat on the battlefield made the government’s ability to raise funds even weaker. To solve the funding problem, the southern government printed and issued 1.7 billion yuan in banknotes within a year. Although this scheme of drinking poison to quench thirst makes the southern government appear to have money in the short term, these banknotes suddenly flooded into the southern market, leading to soaring prices, people living in poverty, and the entire southern economy collapsing rapidly. The economic collapse exacerbated the military crisis, and the Confederate army retreated all the way to Appomattox, Virginia. In the end, Confederate commander Robert E. Lee had to decide to surrender.
Looking back at the details in the depths of history, we will find that the efficiency of capital accumulation determines the outcome of military confrontation. Behind the outcome of the war is actually a financial contest. No wonder a southern general said sadly: “We did not lose to the soldiers of the North, but to the finance of the North.”
The Power Behind New York’s Prosperity The concentration of
capital not only the key to the outcome of the war, the city Behind the rise and fall is also the role of capital accumulation.
New York in the 19th century was an obscure port town until the Erie Canal appeared.
Before the construction of this canal, a ton of flour from the west of the United States was transported to the east, bypassing the Mississippi River, and it took 3 weeks on the road, and the freight was about 120 US dollars. A traffic artery was opened, the shipping time was reduced to 8 days, and the shipping fee dropped from $120 to $6. With the improvement of transportation efficiency, the volume of foreign freight in New York increased rapidly, and by the mid-19th century, it accounted for 62% of the freight volume in the United States, and the population of New York surged from more than 100,000 to more than 1 million.
Many historians say that the miracle of New York is the miracle of the Erie Canal. But few people know that without financial help, the Erie Canal would have almost become a mirage.
The project of building a canal is time-consuming and expensive. At that time, it was estimated that the investment in the construction of such a canal would cost at least 7 million US dollars. At that time, the annual fiscal revenue of the United States was only 22 million US dollars, so it was impossible for the federal government to invest. And the people of New York don’t know what benefits the canal can create for them, and they don’t want to pay taxes to support it. If the funding problem is not resolved, no matter how grand the plan is, it will fail.
At this time, Wall Street bankers played a very important role. They offered to help New York State issue Erie Canal bonds. Due to the lack of a unified expectation for the future of the Erie Canal, bankers came up with a form of financial innovation called “issue of bonds in installments”: the first funds raised through the issuance of bonds were used to repair the first section of the canal. The issuance and construction were successful, and the subsequent financing and construction were iteratively carried out.
As the first municipal bond in the United States and the first engineering bond on Wall Street, the first financing of the Erie Canal was very successful: the $1 million bond was quickly sold throughout the United States and Europe through Wall Street’s global sales network. Funds were quickly made available, and construction of the first section of the canal started on schedule in 1817. Two years later, the first section of the canal was opened to traffic, and the revenue that year was as high as 250,000 US dollars.
The big gains have sparked enthusiasm among investors. As Wall Street bankers had expected, the Erie Canal bonds began to gain traction, money poured in, and construction accelerated. In 40 years, New York has staged the story of the sparrow turning into a phoenix, from an unknown small port city to the trade and financial center of the eastern United States and even the world.
The second battlefield of the American Civil War