Academic journal article ABA Banking Journal

Financing Victory

Academic journal article ABA Banking Journal

Financing Victory

Article excerpt

In the 1850s, the federal government spent between $50 and $60 million per year. By the end of 1861, however, it was spending a million dollars a day fighting the Civil War. (By 1865 it was spending $3.5 million a day and became the first government in world history to spend more than $1 billion in a single year.)

Previously, when the government had needed to borrow, it would issue bonds and sell them to banks, which would keep them in their reserves or resell them to their largest customers. Clearly that would not suffice to raise the enormous sums needed to fight the greatest war of the 19th century. It was a Philadelphia banker named Jay Cooke who found the answer.

Cooke, originally from Ohio, had opened his own banking house in 1861. His older brother had close connections with Salmon P. Chase, the secretary of the treasury and former governor of Ohio, and Chase gave Cooke $2 million in bonds to sell to Philadelphia banks. He did so in one afternoon. Then Chase took Cooke to New York, where they sold $50 million to the banks there.

When Cooke was made the agent to new issue of bonds, had the Trea-offer the bonds in inations as low as accepted payment installment plan the little guy into the new bonds. …

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