The Federal Government Buys




1Heather Cox Richardson, The Greatest Nation of the Earth: Republican Economic Politics During the Civil War (Cambridge, Massachusetts: Harvard university Press, 1997), 31

2 Richardson, The Greatest Nation of the Earth, 32

3 Richardson, The Greatest Nation of the Earth, 42

4 Richardson, The Greatest Nation of the Earth, 31, 39, 41, 43-45.

5 Richardson, The Greatest Nation of the Earth, 47

6 David White, "Born in the USA: A New World of War," History Today 60, no. 6 (June 2010): 12-19, Religion and Philosophy Collection, EBSCOhost (accessed January 1, 2013).

7 Richardson, The Greatest Nation of the Earth, 47, 61

8 Mark Wilson, The Business of Civil War: Military Mobilization and the State, 1861 – 1865 (Baltimore: Johns Hopkins University Press, 2006), 114

9 Wilson, The Business of Civil War, 113-115

10 Wilson, The Business of Civil War, 130

11 Richardson, The Greatest Nation of the Earth, 33

12 Richardson, The Greatest Nation of the Earth, 47

Federal Financing of Union Supply

The Ordnance


According to the Library of Congress, this greenback issued by the Merchant's Bank of Trenton, New Jersey, on November 20, 1861 is the earliest dated bill that had Lincoln decorating it.

By March 1861, the United States treasury faced a $65 million deficit.1 At that time, the federal government did not have the proper infrastructure to obtain or transfer that large of an amount of money.2 Moreover, the United States was faced with essentially no foreign monetary aid.3 The war required men, food, medicine, weapons, and clothes. For that they needed money. Funding was the first step in bringing what they viewed as the rebelling states back into the Union.

U.S. Treasury Secretary Salmon P. Chase struggled to find a funding plan that appealed to and was plausible for the banks to support the Union through war bonds. He ultimately gained some cooperation as well as the banks’ distrust. Chase also created a successful popular loan plan, or a plan to obtain money from the country’s citizens.
4 The North put in place various taxes, including the first American income tax.5a

Yet when the banks, in particular those in New York, refused to accept the government demand notes and wanted the money that the government owed them in bonds, the treasury was forced to turn to another strategy.
5 In order to help finance the war, the United States began to print “greenbacks” or paper money, starting in 1862. According to historian David White, “The total, $450 million, was strictly controlled and they [greenbacks] were considered legal tender; everyone, including the government, was obliged to accept them in payment of debts and contracts. By the war’s end, the paper currency was still worth about 50 cents in gold.”6 The usage of greenbacks had mixed results for the contractors who would sometimes risk their company’s welfare to fulfill a government contract.

Certificates of Indebtedness were specifically issued to contractors in absence of actual payments in currency. They were one year notes with six percent interest. The U.S. Treasury issued $507.
6 million worth of certificates between March of 1862 and June 1865.7 The certificates of indebtedness were issued two to three months after the product’s final delivery. The contractors would then sell the certificates at a discounted rate for cash to pay workers and banks.8 Both greenbacks and certificates of indebtedness were affected by inflation, causing their value to decrease.9 That process put the contractors at risk to lose money that they would have obtained through the normal payment methods. Because the government’s payment method was not fully reliable, contractors tended to be big companies that could more easily absorb the losses than the smaller businesses. The smaller businesses assumed less risk by being subcontractors.

a That income tax was three percent, and only citizens who earned $800 or more annually were taxed. Therefore, the income tax was small and only for the wealthy to pay; therefore, farmers and industrial workers were not taxed among other lower-wage professions.6 That was possibly because the North did not want to tax its citizens unnecessarily.10 Other taxes included the exise tax, inheritance tax, value-added tax, stamp tax, and tobacco tax.6