Library of Congress

By Roger Lowenstein

During the summer of 1862 , the Union army fell into a slump . The army ’ s reverses moved Britain closer than ever to recognizing the Confederacy and pushing for a peace settlement . These two factors — disappointments in battle and the growling British lion — weighed like a millstone on the Union ’ s credit . Military and financial stagnation served as a backdrop for two major Union initiatives .

One was Lincoln ’ s decision to finally tackle the question of emancipation . The other , more purely financial , involved a major effort by the President and his Treasury Secretary , Salmon P . Chase , to get cotton out of the South . Lincoln thought more about the purse than is credited ; he considered a robust Treasury vital to winning the war . And until the war , cotton had been America ’ s biggest export , playing much the role of oil in a modern petrostate . Congress had authorized trading in occupied southern territory , under Treasury regulations , in 1861 . By 1862 , Lincoln had come to believe that exporting cotton could significantly relieve the strain on the Union finances . He and Secretary Chase were each extremely anxious to procure cotton because its sale for gold or other hard currency would shore up the greenback and the Union ’ s credit .

The President was also eager to revive business in the Union-occupied South . The potential for trade with southern communities spoke to the vision he had articulated at his inaugural — that America was one country , with no natural boundaries or divisions . However , this lofty vision ran smack into the fractious reality of civil war . Trade within the South would inevitably deliver funds into enemy hands . It would prop up the Confederacy at its weakest link — its hollowed-out economy .

At a cabinet meeting in February 1862 , Chase presented a plan for issuing licenses to traders to purchase cotton and other goods . The same day , Lincoln issued an order permitting “ a partial restoration of Commercial intercourse ” within the rules to be prescribed by the Treasury Secretary . Thus , significant responsibility lay with

Portrait of Abraham Lincoln , 1860 .

10 FINANCIAL HISTORY | Spring 2022 | www . MoAF . org