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Historical Error #16: Lincoln Favored the Greenbacks Over Any Union Debt to Bankers.

Gary North
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Ellen Brown says that the $450 million in Greenbacks were Lincoln's tools for not going into debt to bankers.

soldiers and government employees, and to buy supplies for the war. The Greenback system was not actually Lincoln's idea, but when pressure grew in Congress for the plan, he was quick to endorse it. The South had seceded from the Union soon after his election in 1860. To fund the War between the States, the Eastern banks had offered a loan package that was little short of extortion -- $150 million advanced at interest rates of 24 to 36 percent. Lincoln knew the loan would be impossible to pay off. He took the revolutionary approach because he had no other real choice. The government could either print its own money or succumb to debt slavery to the bankers. [Web of Debt, p. 85]

If this was his goal, he failed miserably. We read this on the website of the U.S. Treasury.

The American Civil War resulted in dramatic debt growth. The debt was just $65 million in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war.

But substituting fiat money for bonds was never his goal. He preferred selling bonds that paid interest. So did his Secretary of the Treasury.

Lincoln on the day after his inauguration appointed Salmon P. Chase as the Secretary of the Treasury. Chase cut a deal with fellow-Ohioan Jay Cooke, giving his company a monopoly over selling Union bonds. Cooke had been Chase's supporter the previous summer when Chase ran for the Republican Party's nomination as President. Lincoln defeated him. There is a two-volume work on him, published in 1907, Jay Cooke: Financier of the Civil War. It is still in print. Volume 2 is on Google Books for free.

Here is the extract from

The outbreak of the Civil War gave Cooke his great opportunity, and his many fruitful ideas pushed him to the top of the business. Salmon Chase, the secretary of the Treasury and a fellow Ohioan, sought to sell the Treasury's first issues of war bonds and notes through banks and failed (at this time it was customary to dispose of public securities by competitive bidding). Cooke persuaded Chase to appoint him a special "fiscal agent." Using the then unheard-of methods of advertising and personal solicitation by salesmen all over the country, Cooke sold at par (from October 1862 to January 1864) more than $500 million of the 6 percent bonds to as many as 1 million individual investors and country bankers. As fiscal agent, Cooke played another important role: he supported the price of government securities in the New York money market. "Pegging the market" from this time on became a necessary part of such financing. In January 1865 Cooke was called again to handle a large issue of 3-year Treasury notes bearing 7.3 percent interest; in 6 months he sold more than $600 million.

By the end of the war Cooke had three banking houses, each with a separate group of partners, in Philadelphia, New York, and Washington. In 1870 a similar bank was set up in London, and the next year all were brought together as a single partnership. Cooke expanded (and overexpanded) into many fields. He had been friendly to the National Banking Act of 1863 and obtained charters for national banks in Washington and New York; the national banks were the prime source of Cooke's strength.

To these banks and to small investors at home and abroad Cooke, now an investment banker, sold participation in state and railroad loans; the largest loans went to the great land-grant Northern Pacific Railroad, which was chartered to run from Duluth, Minn., to Tacoma, Wash. In this connection Cooke introduced two new ideas into banking: the establishment of banking syndicates as underwriters to handle particular issues, and the active participation by bankers in the affairs of the companies they were helping finance.

Lincoln hated fiat money -- the Greenbacks. He accepted the third and final issue of these fiat bills, but he sent a letter to Congress, in January 1863, in which he expressed his "sincere regret that it has been found necessary to authorize an additional issue of United States notes." He called on Congress to pass his solution, the National Bank Act, which Congress did a month later. This is recorded in the definitive historical book on the greenbacks, Wesley C. Mitchell's A History of the Greenbacks (1903), page 109. You can download it for free here.

It was then that Union debt soared, and Jay Cooke -- faithful Republican -- got even richer.

You want more evidence? Here is what Wikipedia says (September 2010).

In the early months of the American Civil War, Cooke collaborated with the secretary of the treasury Salmon P. Chase in securing loans from the leading bankers in the Northern cities; his own firm was so successful in distributing treasury notes that Chase engaged him as special agent for the sale of the $500,000,000 of so-called "five-twenty" bonds--which were callable in 5 years and matured in 20 years--authorized by Congress on February 25, 1862. The treasury department had previously failed in selling these bonds.

Cooke secured the influence of the American press, appointed 2,500 sub-agents, and quickly sold $11,000,000 more in bonds than had been authorized. Congress immediately sanctioned the excess. At the same time, Cooke influenced the establishment of national banks, and organized a national bank at Washington and another at Philadelphia almost as quickly as Congress could authorize the institutions.

In the early months of 1865, with the government facing pressing financial needs in the wake of disappointing sales of the new "seven-thirty" notes by the national banks, Cooke's services were again secured. He sent agents into remote villages and hamlets, and even into isolated mining camps in the west, and persuaded rural newspapers to praise the loan. Between February and July 1865 he disposed of three series of the notes, reaching a total of $830,000,000. This allowed the Union soldiers to be supplied and paid during the final months of the war.

The Greenbacks first came into circulation in July 1861. There were no more after January 1863. The total of $450 million was dwarfed by the total debt of $2.7 billion.

All of this has been known to historians for over 140 years. If Ellen Brown was unaware of this when she wrote Web of Debt, she had no business writing it. She is totally incompetent as an historian. But if she did know, then she is actively deceiving her readers. You should not trust her or her book.

My reply to her response is here:

For a detailed critique of Ellen Brown's economics, go here:

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