Financing The War  "War Bonds"

At the end of 1860 the United States had amassed a national debt of less than $65 million. Two years later, the debt stood at over $524 million and wa increasing by more than $1.5 million a day. Embroiled in the largest western conflict of the century, the Union government was forced to invent new methods of increasing revenues to finance the Civil War's unprecedented costs. All three traditional governmental ways of raising revenue- taxing, printing, and borrowing- were utilized creatively throughout the war.

Congress began by levying taxes on almost everything, from income to billiard tables. Before the war, annual tax revenues had never amounted to more than $74 million; by 1866, they came to $588 million. Taxes accounted for 21 percent of the government's wartime revenue; creating a national currency and printing greenbacks added only another 13 percent. The deficit for 1862 still amounted to 813 percent of revenues.

The vast majority of the Union funds backing the war came from the sale of war bonds, an idea conceived by Philadelphia banker Jay Cooke that has been the means of financing wars ever since. Cooke organized national bond drives that offered war bonds in denominations as low as $50 to thousands of ordinary citizens throughout the North. The bonds, called five-twenties because they were to be redeemed in not fewer than five years and no more than 20, paid 6 percent interest, in gold. Cooke placed ads in newspapers and distributed handbills, and eventually 5 percent of the northern population had invested in the war.

Two-thirds of the Union's wartime revenues came from Cooke's efforts. In May 1864 he was raising about $2 million a day- faster than the War Department could spend it. Some days he would sell as much as $9.5 million worth of bonds. Though the national debt in 1866 amounted to more than $2.755 billion- 42 times the 1860 level- the selling of war bonds allowed the Union to continue the prosecution of the war until the South was overwhelmed.

Fascinating Fact:  Philadelphia banker Jay Cooke sold $853 million in war bonds in the first six months of 1865.


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