The War with Inflation and the Confederacy

During the Civil War, the Lincoln administration demonstrated that a progressive agenda and effective anti-inflationary measures could overlap.

Three years after the firing on Fort Sumter, the Civil War still dragged on. In April 1864, the Union Army entered its fourth year of war, having made little recent progress. Its last major victory, five months previous, at Chattanooga, was defensive, holding territory it had earlier captured; the July 1863 victories at Vicksburg and Gettysburg were even further in the past. Ulysses S. Grant had one month previously been promoted to become the commanding general of the Union Army, but he had yet to mobilize his troops against the Confederates in the war’s eastern theater. Success appeared likely, eventually, but it had not yet arrived.

Meanwhile, newspapers were describing another aspect of the crisis: the “novel inflation of the currency.”1 As the New York Times reported just days after the Fort Sumter anniversary, “Almost every necessary of household consumption is … from 75 to 100 per cent higher than it was a year ago.”2 The crises the Lincoln administration faced compounded across four years of war; superadded to them all was inflation.

The man fighting the war with inflation—as Roger Lowenstein narrates in Ways and Means: Lincoln and His Cabinet and the Financing of the War—was Lincoln’s treasury secretary, Salmon Chase. The Civil War—its costs, its strain on demands, its disruptions of trade and supply chains—made the effort to combat inflation, for the treasury secretary with, as he said, a “fishy name,” much like swimming upstream. Indeed, Chase’s job was more complex than simply curbing inflation within the United States; he also worked to indirectly exacerbate it within the Confederacy. This made Chase’s battle one with inflation rather than just against it.

Chase’s actions, Lowenstein argues, were a key reason the Union won the war. In fact, Ways and Means makes clear that the treasury secretary’s campaign in the balance sheets was as significant as Grant’s more famous victories on the battlefield.

But Lowenstein’s argument goes further, looking beyond the Union’s success in the war: between 1861 and 1865, the Union—or, rather, the Nation, as it was increasingly known—accomplished far more than the defeat of the Confederacy. Lincoln and the wartime Congress abolished slavery, established national banks and a national currency, levied an income tax, added new departments to the federal government, and planned both a transcontinental railroad and the land-grant universities that still operate across the United States today. They achieved all this not in spite of wartime inflation, but, instead, as part of an agenda that combatted inflation.

A longtime financial journalist, Lowenstein may well have predicted the drastic inflation that coincided with his book’s publication. Ways and Means does not, however, claim a direct application to the present. Reading this history within the context of our current crises makes its lesson for the present clear.

The risks of inflation did not paralyze the Lincoln administration’s social agenda. Instead, the war with inflation was fought with the tools of that social agenda, with measures that would simultaneously combat inflation and advance the interests of a laboring class over those of an entrenched oligarchy.

Present-day Republicans want very much to believe today’s inflation story repeats that of the late 1970s, when they were poised for major electoral victory. Ways and Means directs us, instead, to consider today’s inflation in light of that experienced in the 1860s. The lesson of Lincoln and Chase’s war with inflation is not that an inflationary crisis requires government to scale back its progressive agenda. Instead, Lowenstein’s 1860s demonstrate that a progressive agenda and effective anti-inflationary measures overlap as big national projects.

Recent histories of the Civil War have embraced the view, held by contemporary Republicans like Thaddeus Stevens and Frederick Douglass, that the war was fought against a slaveholder oligarchy. Lowenstein, subtly and surprisingly, joins them; he narrates not merely Chase’s fiscal policies but also the Lincoln administration’s efforts to combat oligarchy and empower a nation of middle-class laborers. His history demonstrates the great risk—in Lincoln’s time and our own—in using the government to advance the interests of wage earners: inflation.

For some, the signs of inflation warn against government action, especially action to promote economic equality. Not for Lincoln, nor for Chase. Even so, the administration did not press blindly on without heeding inflationary risks. Instead, they pursued policies they thought would hinder inflation and benefit their middle-class constituency. Lowenstein documents their anti-inflationary moves, including economically progressive policies, ambitious infrastructure projects, and centralized planning.

And yet, taken together, his book offers an economic interpretation that looks beyond individual anti-inflationary policies. Specifically, it lays out how projects of future planning and national confidence—though seemingly disconnected from economic policy—can have surprisingly anti-inflationary effects. The big, ambitious national projects of the Lincoln administration, far from being surrendered at the first sign of inflation, were used to fight inflation and restore fiscal solvency.

Lowenstein’s 1860s demonstrate that a progressive agenda and effective anti-inflationary measures overlap as big national projects.

Lowenstein’s most forceful intervention in how we understand the politics of the Civil War era is to emphasize the Republican Party’s continuity with its predecessor, the Whigs. Republican achievements were the realization of long-standing Whig goals to build infrastructure, centralize planning, and intervene to promote commerce and opportunity.

The relationship between the two parties is certainly more complicated than a change in party name. The Whigs, costuming themselves as old English opponents of monarchical power, had coalesced to oppose what they saw as President Andrew Jackson’s dictatorial ambition. But the party’s ideological coherence came from Henry Clay and his proposed American System, a plan of modernization that included a national bank; the building of roads, bridges, and canals; and a protective tariff for American industries. Lincoln had been a Whig congressman in the 1840s, as well as a self-described “disciple” of Clay. Lowenstein treats Lincoln as if he were Henry Clay’s wildest dream—molding Clay’s ideas, within the crucible of national crisis, into the hard, permanent stuff of national government.

But, as a few generations of historians (Eric Foner, William Gienapp, Michael Holt, and Heather Cox Richardson, among them) have toiled to demonstrate, Republicans were not Whigs. Republicans were uniformly antislavery, whereas Whigs had been divided on the issue. Moreover, Republicans were more anti-alcohol, anti-immigrant, and anti-Catholic than the Whigs had been. The Whig plan of internal improvements valorized the entrepreneurial spirit of capitalist endeavor; the Republicans, meanwhile, sanctified the collection of one’s wages with something like religious zeal.

Lowenstein speeds past these distinctions. In doing so, he reveals that the Republicans took the very best of Whig ideas—that government must intervene to promote opportunities—and gave it a national moral vision: equality. At one point, Lowenstein writes, a newspaper described the Lincoln administration’s agenda as a potential “New Deal,” as if it were a forerunner of President Roosevelt’s expansion of state welfare in the 1930s. Thus, in Lowenstein’s storytelling, the best of Clay is the best of Lincoln is the best of FDR is the best of government action.

To frame these different eras as parallel can feel reductive, as if history has but one good move. That one good move—how history narrows itself to be a force on present politics—reflects, of course, the present moment.

Under President Obama, the best of American history looked like victories of moral consensus: the passage of the 13th Amendment, the passage of the 19th Amendment, the Brown v. Board decision. Under Trump, the best of American history appeared to be acts of resistance: John Brown’s raid, the hunger strikes of the suffragettes, the strikes of organized labor, the sit-ins of the 1960s. Under Biden, we may well look to models of big, national projects: Clay’s American System, the Morrill Land-Grant College Act, the Works Progress Administration, the national highway system.

If Biden’s progress on such projects appears insufficient, so, too, was resistance under Trump and moral consensus under Obama. Nonetheless, these thematic keywords represent a meeting point of present politics and historiographic interpretation. That is why Lowenstein’s narrative of fiscal management and the system-wide accomplishments of the wartime Congress appears to be firmly a work of Biden-era Civil War history.

The world of the 1860s was very different from our own: their crises were different, and so were the proposed remedies. The federal government and national economy were different from our own. But money was not so different as one might suppose.

To finance the war, the federal government took a step in 1862 that almost none of the representatives or officials had initially supported: printing paper money. Like our money today, these paper “greenbacks” had to be accepted for payment, as a guarantee of value, not a direct representation of value in coin. Unlike our money today, such “fiat” currency was to be a temporary emergency measure; it represented a debt, which would, once peace was restored, be redeemed in gold and silver.

Chase came around to such legal tender with “reluctance,” but “decidedly.” It was his job to keep $100 of greenbacks as close as possible to $100 of gold. The chart that opens Ways and Means shows how mightily he struggled to do so. The corresponding chart of runaway Confederate inflation shows how competent he (as well as his successors in the Treasury Department, William Pitt Fessenden and Hugh McCulloch) ultimately proved to be.

Seeing a connection between inflation and the ballooning national debt, Chase knew that the best remedy to debt was to increase taxes. Republicans were divided on how to tax a country of unequal wealth and incomes, but, during the war, economic egalitarianism prevailed. And so—when Chase made it clear higher taxes were required—the Republicans instituted not just the nation’s first income tax, but a progressive one, which targeted higher incomes. The wealthy and business leaders largely accepted this move, believing their taxes would offset, and were preferable to, worsened inflation.

Chase recognized that the politics of an inflationary moment involved winning a blame game. For him, the blameworthy were state banks circulating their own bank notes, as well as Wall Street gold speculators driving up the commodity’s value relative to greenbacks. Other Republicans impugned profiteering war suppliers, effective stock villains in this political era. We still use the word “shoddy”—the material cost-saving merchants used to make cheap Union Army uniforms—to indicate when consumers are being cheated by poor workmanship.3 The New York Times article on inflated household goods that Lowenstein discusses (and with which I began this essay) was not straightforward economic analysis; it strikes, instead, a conspiratorial tone. The article, entitled “Plundering Trade Combinations,” laid the blame for more costly eggs upon collusion within mercantile industries.

As Lowenstein tells it, the friendliness Whigs had long extended to banks and businesses was checked by Chase—who had, in fact, quit the Whig Party 20 years earlier. Before he helped found the Republican Party, in the mid-1850s, Chase had counted himself a member, successively, of pretty much all the era’s antislavery parties. Still, he considered himself a Democrat on all issues except slavery. As treasury secretary, he retained his Democratic suspicion of Whiggish bankers and steered the Lincoln agenda, as much as he could, away from providing profit for private banks.

Not to be overlooked, among all the facts and figures, is how much of Lowenstein’s story is about feelings. For all of Chase’s efforts to maintain the value of the dollar, it fluctuated according to events beyond his control—chiefly, the public assessment of the Union Army’s performance in the field. Lowenstein insists that supply and demand never affected monetary value as much as General George McClellan’s reluctance to engage the Confederate armies.

This correlation between public feeling and fiscal solvency was even more pronounced in Chase’s sale of war bonds, which directly tracked confidence in Union victory. In 1862, Chase told Lincoln that firing McClellan would increase the sale of bonds and encourage people to stop the inflation-inducing practice of hoarding coins. In fact, Chase’s chief contractor in selling bonds to the public, Jay Cooke, visited Lincoln and told him the country’s financial situation required McClellan to be dismissed.

Jay Cooke and Company was central to Union victory. Cooke’s genius was to advertise war bonds to the public as a patriotic gamble on the national future.4 The public purchase of US bonds represented a citizen’s wager on the future solvency of the federal government. As Grant advanced steadily on Vicksburg, the smart money was buying the bonds; when Lee stymied Grant at Cold Harbor, the market struggled. The sale of bonds, not unlike today’s political betting market, tracked public predictions on the war’s outcome.

Lowenstein’s history explores a subtle, yet crucial theme: how fiscal solvency is linked with public confidence. Financial investment builds public confidence and public confidence spurs financial investment. But who would go so far as to think that Lincoln’s truism on public sentiment—“with it, nothing can fail; without it nothing can succeed”—applied to the value of the dollar? Inflation tracks that value relative to change over time; bad inflation is too much change in too little time. So, just as one anti-inflationary move today is to encourage less spending and more saving for the future by raising interest rates, the Lincoln administration believed that public confidence in a national future would slow those rates of change.

The foremost achievement of Ways and Means is to integrate the projects of future planning and national confidence into the economic story of the war. For proponents of austerity during crisis, the scale of these projects would appear ludicrous. While the war continued, Congress founded a Department of Agriculture to support the country’s farm industries through centralized administration. Just as tenuously connected to the war effort was Representative Justin Morrill’s proposal to establish at least one college in every state by selling federal land. Morrill mentioned that these schools might teach military tactics. Yet, a century and a half later, the true benefit to the United States has been the research and graduates to come out of the more than 70 land-grant universities across the country.5 The better railroads in Northern states gave the Union an advantage in the war, but they also propelled the wartime Congress to put funding toward the dream of a railroad that would connect the nation, east and west.

To plan to build schools or to plan to build a railroad are hardly policies of tangible, immediate benefit. But they did have an immediate salutary effect on public confidence. And public confidence, it turns out, was Chase’s financial battle all along. Through public confidence in a national future, the story of Whig ambition for a centralized state that generates economic opportunity comes together with the story of the war’s finances, in a unified Lincolnian agenda.

Chase recognized that the politics of an inflationary moment involved winning a blame game.

What, then, of the most important achievement of the Civil War Congress, the abolition of slavery? Lowenstein places it squarely within his twinned narratives of fiscal management and projects of national confidence. He argues that it, too, had anti-inflationary effects.

Many historians—none more prominently than W. E. B. Du Bois—have argued that what crippled the Southern economy was the self-emancipation of enslaved people. Lowenstein shows that these effects were part of the inflation war—that is, the White House’s efforts to intensify inflation in the Confederacy and add to public confidence in the United States.

Lincoln’s Emancipation Proclamation was not met immediately with public confidence. Republicans lost roughly 20 percent of their seats in the House in the midterm elections following the proclamation. And yet, over the next two and a half years, Lincoln’s action, alongside the swelling numbers of Black soldiers joining the Union Army, fostered a massive popular reconception—first by white soldiers, then by much of the North—of the purpose of the war and of government.

The 13th Amendment, which outlawed slavery, was the first amendment to the US Constitution, as Lowenstein notes, that expanded rather than restricted federal power. Abolition was a triumph of national confidence; Cooke’s bond sales boomed.

Lowenstein is not, however, as thorough on slavery as he is on finances. He tries to reject long-standing historiographic debates over slavery’s relationship with capitalism by undertaking a short, strawman attack on the New York Times’s 1619 Project, rather than by engaging substantively with the significant historical scholarship on the subject.

Specifically, Lowenstein maintains that enslaved people, unlike capital, were “locked in place” and not easily convertible to cash. This claim falters under the evidence that people were, in fact, commodified into quantifiable, easily liquidable assets. Those assets were often mortgaged onto the balance sheets of Northern banks, which could, in turn, sell that debt in bulk to investors. Meanwhile, the east-to-west continental market for enslaved people relied, as commodity markets do, on conversion from commodity to paper and back again.6

During the war, this may have changed: if a fluid marketplace of slavery disappeared, leaving only fixed assets that were depreciating and disappearing, this result was not a permanent feature of slavery. Instead, it was a product of actions and policies. Some of these actions belonged to enslaved people who refused to work, refused forced migration, left plantations, and self-emancipated. But a test of Lowenstein’s argument—more responsive to, rather than dismissive of, the nuanced relationship between slavery and capitalism—would ask whether the Lincoln administration’s financial policies helped enable that transformation. Lowenstein may be selling the administration short by characterizing the “locked in place” nature of enslaved people as a longstanding feature of this market, rather than a product of government policy.

The antebellum Whigs have been criticized—by historians as well as by Chase, in his time—for their complicity with the marketplace of slavery. But the history of the Whigs appears to be getting better with time.7 When “our now divided and suffering Country,” as Lincoln would say, cries for restoration, the big interventionist ambitions of the Whigs stand out as a remedy. Turning briefly to Reconstruction, in a final section, Lowenstein advances a complementary, though inverted, argument about financial history. One failure of Reconstruction policy, he suggests, was the failure to deliver Whig-style modernization to the economically devastated South.

If understanding the history of the Civil War requires attention to fiscal management, as Lowenstein asserts, so does any analysis of Reconstruction. Salmon Chase plays a prominent role in this history, too—though now as a proponent of a retreat from centralization.

One surprising reversal, after Chase became the chief justice of the Supreme Court, came in his 1870 Hepburn v. Griswold decision, which declared US legal tender—the very bank notes Chase had managed during the war—unconstitutional.8 Emblematic of the retreat from Reconstruction, Chase’s criticism of centralization was entangled with racial views. Two years earlier, in 1868, when testing the presidential waters once again within the Democratic Party, Chase declared that “while we freed the negro, we enslaved ourselves.” He also demanded that “the centralization of power at Washington must be checked.”9

This is a shocking reversal because Chase had been a true abolitionist, one who sacrificed political gain for antislavery principles. A new biography, Salmon Chase: Lincoln’s Vital Rival by Walter Stahr, supplements Lowenstein’s history with the thesis that Chase was Lincoln’s moral better: an earlier, more forceful abolitionist, who was more committed to Black equality even after Lincoln had joined the cause. Lincoln died before he could disappoint; Stahr does not acknowledge how disappointing Chase became after the Civil War.

Du Bois, by contrast, in Black Reconstruction (1935), reserved harsh criticism for the onetime treasury secretary turned Supreme Court justice. For Du Bois, Chase is an important example of an abolitionist who thought the revolution ended with Black suffrage, stopping well short of the economic and financial interventions Reconstruction required.10

One financial intervention the Reconstruction Congress did make—and that Chase, again, had a hand in—was to charter a Freedman’s Savings and Trust Company (as a private entity, following Chase’s wartime model of government charters). The Freedman’s Savings Bank, as it was known, held assets of more than 70,000 Black depositors across three dozen branches. Chase was a trustee, but not one, apparently, scrupulous enough to notice the risks his friends Jay and Henry Cooke had created when they took over the bank, turned it into an investment firm, and invested its assets in railroad bonds for the transcontinental. Cooke and Company failed and, with it, the Freedman’s Savings Bank, dealing a tremendous blow to Black savings.

The rise and fall of Jay Cooke and Company, from 1861 to its 1873 bankruptcy, bookends the arc of Republicans’ foremost successes in civil rights and Black empowerment. How Cooke helped win the war is a major subplot of Lowenstein’s history; how he helped usher in the retreat from Reconstruction may be saved for the sequel.

Following the Panic of 1873, which was precipitated by Cooke’s bankruptcy, Congress set about trying to stabilize the currency. One 1874 bill to do so, in classic Congressional fashion, was amended into a much larger spending bill to be paid for with the printing of more paper money. The Republican Party’s fiscal conservatives—some abolitionists among them—dubbed it the “Inflation Bill” and pressured Union General-turned-President Grant to veto it.

“The veto marked a milestone” in the development of the Republican Party, Eric Foner writes, in his 1988 history of Reconstruction. It was the moment when “economic respectability replaced equality of rights for black citizens as the essence of the party’s self-image.”11

Lowenstein ends his history well before these developments in financial history. Some of that history—namely, risking the savings of Black Americans on risky railroad ventures—looks like a continuation of Lincoln-era gambles. Even so, in their fiscal policies, it is hard not to see striking differences between the Civil War and post–Civil War Republican parties. Lincoln and Grant may have both presided as Republicans, but the anti-inflationary approaches of their respective eras make the party they led look like two entirely different entities: one saw the tools for fighting inflation in massive national projects; the other surrendered a social agenda to the threat of inflation.


This article was commissioned by Ben Platticon

  1. “Novel Inflation of the Currency,” New York Times, April 20, 1864.
  2. “Plundering Trade Combinations,” New York Times, April 17, 1864.
  3. Henry Morford’s 1863 novel Days of Shoddy takes this up as its theme. For the villainizing of wartime profiteering merchants, see J. Matthew Gallman, Defining Duty in the Civil War (University of North Carolina Press, 2015).
  4. David K. Thomson, in a thorough new history, Bonds of War: How Civil War Financial Agents Sold the World on the Union (University of North Carolina Press, 2022), details how Cooke and a force of agents and subagents in the thousands successfully marketed investment in the national future not only to US citizens but, surprisingly, to a range of European financial actors.
  5. That these universities were such a significant public good makes even more compelling the obligation to redress the theft of Indigenous land that enabled their construction and the inequitable manner in which this public good was shared by Americans.
  6. For instance, Edward Baptist, The Half Has Never Been Told (Basic Books, 2014); Daina Ramey Berry, The Price for Their Pound of Flesh (Beacon Press, 2017); Caitlin Rosenthal, Accounting for Slavery (Harvard University Press, 2018).
  7. Daniel Walker Howe—in books ranging from The Political Culture of the American Whigs (University of Chicago Press, 1979) to What Hath God Wrought (Oxford University Press, 2007)—is most responsible for this favorable reassessment of Whig internal improvements.
  8. This decision was reversed a year later by the Legal Tender Cases, to the relief of then Treasury Secretary George Boutwell. At that point, Chase told Boutwell he would gladly change places with him.
  9. Donn Piatt, Memories of the Men Who Saved the Union (Belford, Clarke, and Company, 1887), pp. 126–127.
  10. W. E. B. Du Bois, Black Reconstruction (Harcourt, Brace, and Howe, 1935), pp. 375–379.
  11. Eric Foner, Reconstruction (Harper Perennial Modern Classics, 1988), p. 522.
Featured Image: Federal Reserve Note featuring Salmon Chase held by the National Numismatic Collection, National Museum of American History / Public Domain, via Wikimedia Commons