The Fall Of King Cotton
While the Confederate Executive was building up its military
establishment, the Treasury was struggling with the problem of paying
for it. The problem was destined to become insoluble. From the
vantage-point of a later time we can now see that nothing could have
provided a solution short of appropriation and mobilization of the whole
industrial power of the country along with the whole military power--a
conscription of wealth of every kind together with conscription of men.
But in 1862 such an idea was too advanced for any group of Americans.
Nor, in that year, was there as yet any certain evidence that the
Treasury was facing an impossible situation. Its endeavors were taken
lightly--at first, almost gaily--because of the profound illusion which
permeated Southern thought that Cotton was King.
Obviously, if the Southern ports could be kept open and cotton could
continue to go to market, the Confederate financial problem was not
serious. When Davis, soon after his first inauguration, sent Yancey,
Rost, and Mann as commissioners to Europe to press the claims of the
Confederacy for recognition, very few Southerners had any doubt that the
blockade would be short-lived. "Cotton is King" was the answer that
silenced all questions. Without American cotton the English mills would
have to shut down; the operatives would starve; famine and discontent
would between them force the British ministry to intervene in American
affairs. There were, indeed, a few far-sighted men who perceived that
this confidence was ill-based and that cotton, though it was a power in
the financial world, was not the commercial king. The majority of the
population, however, had to learn this truth from keen experience.
Several events of 1861 for a time seemed to confirm this illusion. The
Queen's proclamation in the spring, giving the Confederacy the status of
a belligerent, and, in the autumn, the demand by the British Government
for the surrender of the commissioners, Mason and Slidell, who had been
taken from a British packet by a Union cruiser--both these events seemed
to indicate active British sympathy. In England, to be sure, Yancey
became disillusioned. He saw that the international situation was not so
simple as it seemed; that while the South had powerful friends abroad,
it also had powerful foes; that the British anti-slavery party was a
more formidable enemy than he had expected it to be; and that
intervention was not a foregone conclusion. The task of an unrecognized
ambassador being too annoying for him, Yancey was relieved at his own
request and Mason was sent out to take his place. A singular little
incident like a dismal prophecy occurred as Yancey was on his way home.
He passed through Havana early in 1862, when the news of the surrender
of Fort Donelson had begun to stagger the hopes and impair the prestige
of the Confederates. By the advice of the Confederate agent in Cuba,
Yancey did not call on the Spanish Governor but sent him word that
"delicacy alone prompted his departure without the gratification of a
personal interview." The Governor expressed himself as "exceedingly
grateful for the noble sentiment which prevented" Yancey from causing
international complications at Havana.
The history of the first year of Confederate foreign affairs is
interwoven with the history of Confederate finance. During that year the
South became a great buyer in Europe. Arms, powder, cloth, machinery,
medicines, ships, a thousand things, had all to be bought abroad. To
establish the foreign credit of the new Government was the arduous task
of the Confederate Secretary of the Treasury, Christopher G. Memminger.
The first great campaign of the war was not fought by armies. It was a
commercial campaign fought by agents of the Federal and Confederate
governments and having for its aim the cornering of the munitions market
in Europe. In this campaign the Federal agents had decisive advantages:
their credit was never questioned, and their enormous purchases were
never doubtful ventures for the European sellers. In some cases their
superior credit enabled them to overbid the Confederate agents and to
appropriate large contracts which the Confederates had negotiated but
which they could not hold because of the precariousness of their credit.
And yet, all things considered, the Confederate agents made a good
showing. In the report of the Secretary of War in February, 1862, the
number of rifles contracted for abroad was put at 91,000, of which
15,000 had been delivered. The chief reliance of the Confederate
Treasury for its purchases abroad was at first the specie in the
Southern branch of the United States Mint and in Southern banks. The
former the Confederacy seized and converted to its own use. Of the
latter it lured into its own hands a very large proportion by what is
commonly called "the fifteen million loan"--an issue of eight per cent
bonds authorized in February, 1861. Most of this specie seems to have
been taken out of the country by the purchase of European commodities. A
little, to be sure, remained, for there was some gold still at home when
the Confederacy fell. But the sum was small.
In addition to this loan Memminger also persuaded Congress on August 19,
1861, to lay a direct tax--the "war tax," as it was called--of one-half
of one per cent on all property except Confederate bonds and money. As
required by the Constitution this tax was apportioned among the States,
but if it assumed its assessment before April 1, 1862, each State was to
have a reduction of ten per cent. As there was a general aversion to the
idea of Confederate taxation and a general faith in loans, what the
States did, as a rule, was to assume their assessment, agree to pay it
into the Treasury, and then issue bonds to raise the necessary funds,
thus converting the war tax into a loan.
The Confederate, like the Union, Treasury did not have the courage to
force the issue upon taxation and leaned throughout the war largely upon
loans. It also had recourse to the perilous device of paper money, the
gold value of which was not guaranteed. Beginning in March, 1861, it
issued under successive laws great quantities of paper notes, some of
them interest bearing, some not. It used these notes in payment of its
domestic obligations. The purchasing value of the notes soon started on
a disastrous downward course, and in 1864 the gold dollar was worth
thirty paper dollars. The Confederate Government thus became involved in
a problem of self-preservation that was but half solved by the system of
tithes and impressment which we shall encounter later. The depreciation
of these notes left governmental clerks without adequate salaries and
soldiers without the means of providing for their families. During most
of the war, women and other noncombatants had to support the families or
else rely upon local charity organized by state or county boards.
Long before all the evils of paper money were experienced, the North,
with great swiftness, concentrated its naval forces so as to dominate
the Southern ports which had trade relations with Europe. The shipping
ports were at once congested with cotton to the great embarrassment of
merchants and planters. Partly to relieve them, the Confederate Congress
instituted in May, 1861, what is known today as "the hundred million
loan." It was the first of a series of "produce loans." The Treasury was
authorized to issue eight per cent bonds, to fall due in twenty years,
and to sell them for specie or to exchange them for produce or
manufactured articles. In the course of the remaining months of 1861
there were exchanged for these bonds great quantities of produce
including some 400,000 bales of cotton.
In spite of the distress of the planters, however, the illusion of King
Cotton's power does not seem to have been seriously impaired during
1861. In fact, strange as it now seems, the frame of mind of the leaders
appears to have been proof, that year, against alarm over the blockade.
For two reasons, the Confederacy regarded the blockade at first as a
blessing in disguise. It was counted on to act as a protective tariff in
stimulating manufactures; and at the same time the South expected
interruption of the flow of cotton towards Europe to make England feel
her dependence upon the Confederacy. In this way there would be exerted
an economic coercion which would compel intervention. Such reasoning lay
behind a law passed in May forbidding the export of cotton except
through the seaports of the Confederacy. Similar laws were enacted by
the States. During the summer, many cotton factors joined in advising
the planters to hold their cotton until the blockade broke down. In the
autumn, the Governor of Louisiana forbade the export of cotton from New
Orleans. So unshakeable was the illusion in 1861, that King Cotton had
England in his grip! The illusion died hard. Throughout 1862, and even
in 1863, the newspapers published appeals to the planters to give up
growing cotton for a time, and even to destroy what they had, so as to
coerce the obdurate Englishmen.
Meanwhile, Mason had been accorded by the British upper classes that
generous welcome which they have always extended to the representative
of a people fighting gallantly against odds. During the hopeful days of
1862--that Golden Age of Confederacy--Mason, though not recognized by
the English Government, was shown every kindness by leading members of
the aristocracy, who visited him in London and received him at their
houses in the country. It was during this period of buoyant hope that
the Alabama was allowed to go to sea from Liverpool in July, 1862. At
the same time Mason heard his hosts express undisguised admiration for
the valor of the soldiers serving under Jackson and Lee. Whether he
formed any true impression of the other side of British idealism, its
resolute opposition to slavery, may be questioned. There seems little
doubt that he did not perceive the turning of the tide of English public
opinion, in the autumn of 1862, following the Emancipation Proclamation
and the great reverses of September and October--Antietam-Sharpsburg,
Perryville, Corinth--the backflow of all three of the Confederate
offensives.
The cotton famine in England, where perhaps a million people were in
actual want through the shutting down of cotton mills, seemed to Mason
to be "looming up in fearful proportions." "The public mind," he wrote
home in November, 1862, "is very much disturbed by the prospect for the
winter; and I am not without hope that it will produce its effects on
the councils of the government."
Yet it was the uprising of the British working people in favor of the
North that contributed to defeat the one important attempt to intervene
in American affairs. Napoleon III had made an offer of mediation which
was rejected by the Washington Government early the next year. England
and Russia had both declined to participate in Napoleon's scheme, and
their refusal marks the beginning of the end of the reign of King
Cotton.
At Paris, Slidell was even more hopeful than Mason. He had won over
Émile Erlanger, that great banker who was deep in the confidence of
Napoleon. So cordial became the relations between the two that it
involved their families and led at last to the marriage of Erlanger's
son with Slidell's daughter. Whether owing to Slidell's eloquence, or
from secret knowledge of the Emperor's designs, or from his own
audacity, Erlanger toward the close of 1862 made a proposal that is one
of the most daring schemes of financial plunging yet recorded. If the
Confederate Government would issue to him bonds secured by cotton,
Erlanger would underwrite the bonds, put the proceeds of their sale to
the credit of the Confederate agents, and wait for the cotton until it
could run the blockade or until peace should be declared. The
Confederate Government after some hesitation accepted his plan and
issued fifteen millions of "Erlanger bonds," bearing seven per cent, and
put them on sale at Paris, London, Amsterdam, and Frankfort.
As a purchaser of these bonds was to be given cotton eventually at a
valuation of sixpence a pound, and as cotton was then selling in England
for nearly two shillings, the bold gamble caught the fancy of
speculators. There was a rush to take up the bonds and to pay the first
installment. But before the second installment became due a mysterious
change in the market took place and the price of the bonds fell. Holders
became alarmed and some even proposed to forfeit their bonds rather than
pay on May 1, 1863, the next installment of fifteen per cent of the
purchase money. Thereupon Mason undertook to "bull" the market. Agents
of the United States Government were supposed to be at the bottom of the
drop in the bonds. To defeat their schemes the Confederate agents bought
back large amounts in bonds intending to resell. The result was the
expenditure of some six million dollars with practically no effect on
the market. These "Erlanger bonds" sold slowly through 1863 and even in
1864, and netted a considerable amount to the foreign agents of the
Confederacy.
The comparative failure of the Erlanger loan marks the downfall of King
Cotton. He was an exploded superstition. He was unable, despite the
cotton famine, to coerce the English workingmen into siding with a
country which they regarded, because of its support of slavery, as
inimical to their interests. At home, the Government confessed the
powerlessness of King Cotton by a change of its attitude toward export.
During the latter part of the war, the Government secured the meager
funds at its disposal abroad by rushing cotton in swift ships through
the blockade. So important did this traffic become that the Confederacy
passed stringent laws to keep the control in its own hands. One more
cause of friction between the Confederate and the State authorities was
thus developed: the Confederate navigation laws prevented the States
from running the blockade on their own account.
The effects of the blockade were felt at the ends of the earth. India
became an exporter of cotton. Egypt also entered the competition. That
singular dreamer, Ismail Pasha, whose reign made Egypt briefly an exotic
nation, neither eastern nor western, found one of his opportunities in
the American War and the failure of the cotton supply.