American canal construction companies, and a multiplicity of other concerns. They became the major importers of bullion from the newly discovered goldfields.'1
Belmont had placed large amounts of Rothschild money into the bonds of state-sponsored banks in the South. Those bonds, of course, had fallen in value to practically zero. As the war shifted in favor of the North, however, he began to buy up as many
additional bonds as he could, paying but a few pennies on each dollar of face value. It was his plan to have the Union force the Southern states at the end of the war to honor all of their pre-war debt obligations—in full. That, of course, would have been a source of gigantic speculative profits to the Rothschilds. Meanwhile, on the northern side of the Mason-Dixon Line, Belmont became the chief agent for the sale of Union bonds in England and France. It was rumored that, when Belmont called on President Lincoln and personally offered Rothschild money at 27 V2 per cent interest, he was rudely thrown out of the office. The story is doubtful, but it represents a larger truth. Profiting from war and placing money on both sides of the conflict were exactly the kind of maneuvers for which the Rothschilds had become famous throughout Europe and were now practicing in America.
In the North, the sale of government bonds was the one
measure for raising funds that seemed to work. Even that, however, with the lure of compounded interest to be paid in gold at a future date, failed to raise more than about half the needed amount. So the Union faced a real dilemma. The only options remaining were (1) terminate the war or (2) print fiat money. For Lincoln and the Republicans who controlled Congress, the choice Was never seriously in doubt.
The precedent had already been set during the War of 1812. At that time, Secretary of the Treasury, Albert Gallatin, had abrogated the Constitutional ban against 'bills of credit' by printing Treasury 1 • See Derek Wilson, p. 178.
384
THE CREATURE FROM JEKYLL ISLAND
notes, most of which paid interest at 5.4 per cent. The money was never declared legal tender, and that probably was the basis on which it was defended as constitutional.
THE GREENBACKS
By the time of the War Between the States, however, all
pretense at constitutionality had been dropped. In 1862, Congress authorized the Treasury to print $150 million worth of bills of credit and put them into circulation as money to pay for its expenses.
They were declared as legal tender for all private debts but could not be used for government duties or taxes. The notes were printed with green ink and, thus, became immortalized as 'greenbacks.'
Voters were assured that this was a one-time emergency measure, a promise that was soon broken. By the end of the war, a total of $432 million in greenbacks had been issued.
The pragmatic mood in Washington was that a constitution is nice to have in times of peace, but an unaffordable luxury in war.
Salmon P. Chase, for example, as Secretary of the Treasury, strongly endorsed the greenbacks which were issued under his direction. They were, in his words, an 'indispensable necessity.'
Eight years later, as Chief Justice of the Supreme Court, he declared that they were unconstitutional. Had he changed his mind? Not at all. When he endorsed them, the nation was at war. When he declared them unconstitutional, it was at peace. It was merely another example of the universal trait of all governments in time of war. That trait was presented in a previous section as the premise of the Rothschild Formula: 'The sanctity of its laws, the prosperity of its citizens, and the solvency of its treasury will be quickly sacrificed by any government in its primal act of self-survival.'
The pressure for issuance of greenbacks originated in Congress, but Lincoln was an enthusiastic supporter. His view was that: Government, possessing power to create and issue currency and credit as money and enjoying the right to withdraw currency and credit from circulation by taxation and otherwise, need not and should not borrow capital at interest.... The privilege of creating and issuing money is not only the supreme prerogative of the government but it is the government's greatest creative opportunity.
1. This is taken from an abstract of Lincoln's monetary policy that was prepared by the Legislative Reference Service of the Library of Congress. Quoted by Owen, p. 91.
GREENBACKS AND OTHER CRIMES 385
It would appear that Lincoln objected to having the government pay interest to the banks for money they create out of nothing when the
LINCOLN'S MIXED VIEW OF BANKING
It is apparent that Lincoln had undergone a change of heart regarding banks. Early in his political career, he had been a friend of the banking industry and an advocate of easy credit. As a member of the Whig political party in the 1830s—before becoming a Republican in his campaign for the Presidency—he had been a supporter of Biddle's Second Bank of the United States.1 During his famous debates with Senator Stephen Douglas, one of the points of contention between the two was that Lincoln defended the Bank and advocated its reestablishment. Furthermore, after becoming President, he took the initiative in requesting Congress to reestablish central banking.2
Lincoln appears to have been inconsistent, and one gets a gnawing feeling that, in his effort to finance an unpopular war, he sometimes found it necessary, like Salmon Chase and other politicians of the time, to anesthetize his personal convictions and do whatever was required to meet the exigencies of governmental survival.
One thing, however, is clear. Regardless of Lincoln's personal views on money, the greenbacks were not pleasing to the bankers who were thereby denied their customary override on government debt. They were anxious to have this federal fiat money replaced by
1- See Lincoln's speech on the Sub-Treasury, Fehrenbacher, pp. 56-57.
