Chapter 4

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.