Trading with the Enemy

  TRADING WITH THE ENEMY

  THE COVERT ECONOMY DURING THE AMERICAN CIVIL WAR

  PHILIP LEIGH

  WESTHOLME

  Yardley

  ©2014 Philip Leigh

  Maps by Tracy Dungan

  Maps ©2014 Westholme Publishing

  All rights reserved under International and Pan-American Copyright Conventions. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without permission in writing from the publisher, except by a reviewer who may quote brief passages in a review.

  Westholme Publishing, LLC

  904 Edgewood Road

  Yardley, Pennsylvania 19067

  Visit our Web site at www.westholmepublishing.com

  ISBN: 978-1-59416-576-4

  Also available in hardback.

  Produced in the United States of America.

  To Parker, Travis, and Trenton

  …the ways of the dollar were always devious.

  —Walter Tevis, The Hustler

  CONTENTS

  List of Maps and Tables

  Introduction

  1. The World Cotton Economy

  2. Official Policy

  3. The Port Royal Experiment

  4. Matamoros

  5. Mississippi Valley Trade

  6. Abusing the Blockade

  7. Norfolk

  8. Kirby Smithdom

  9. Eyes Tightly Shut

  Conclusion

  Notes

  Bibliography

  Index

  Maps and Tables

  1. New England Textile Mills

  2. Table 1: Cotton Production and Consumption

  3. Table 2: Cotton Prices, 1860–65

  4. Beaufort Harbor

  5. Mexico and United States Border, 1860

  6. Cotton Production in the South, 1860

  7. Routes of Blockade Runners

  8. The Red River Campaign

  9. Table 3: US Govt Spending and Revenue, 1860–65

  INTRODUCTION

  ON JUNE 7, 1863, THE CONFEDERATE COMMERCE RAIDER Clarence forced the US flagged Alfred H. Partridge to stop off the North Carolina coast. The raider anticipated the Partridge would be the second of an eventual string of twenty-one prizes. Normally, seized merchant ships were burned or used to transport previously captured crews to a safe harbor. But upon boarding the schooner, the Rebels discovered it was bound for Matamoros, Mexico, out of New York with a cargo of arms and clothing for Texas Confederates. Consequently, the Partridge was set free.1

  Since Matamoros was a neutral Mexican port, federal warships could not blockade it. Before the Civil War, only about one ship annually cleared New York for the Mexican town. However, a year after the war's first important battle at Bull Run, the average was about one per week. Ships to Matamoros were also cleared from Boston, Philadelphia, and other Northern harbors. Cargoes included a multitude of Northern-made items that would have been considered contraband if shipped directly into the Confederacy. They encompassed weapons, munitions, and military uniforms, among other articles. For Northerners willing to help arm the Confederacy for a profit, Matamoros was little more than a legal fig leaf to cover dubious, if not treasonable, conduct.2

  In exchange, Southern planters provided cotton from fields as far away as Arkansas, Louisiana, and east Texas. They typically loaded wagons with twenty cotton bales and set out in caravans over crude trails ending in Brownsville, Texas, across the shallow Rio Grande from Matamoros. En route teamsters were vulnerable to unpredictable water shortages and attack from hostile Native Americans, and outlaws of all types. Next to gold or specie (gold and silver coins), cotton was the most acceptable international exchange medium available to North Americans, whether in the Union or Confederacy. Adroit, clever, and sometimes ruthless contraband-for-cotton traders accumulated fortunes in Matamoros and Brownsville.3

  One example was Connecticut-born Charles Stillman, who sold Rebel cotton out of Matamoros to buyers in Northern states, including the US government. His chief cotton supplier was a putative Confederate-loyal Texan who changed sides after federal troops temporarily occupied Brownsville in November 1863. In order to prevent interference from the newly arrived Yankee soldiers, he swore an oath of loyalty to the Union. After the war, Stillman was one of the wealthiest Americans and a major shareholder in New York's National City Bank. His son, a grandson, and a great-grandson each served as National City's board chairman, the great-grandson as late as 1967. Presently, the bank is known as Citicorp. Two of Charles Stillman's granddaughters married into the Rockefeller family.4

  Despite its legal circumvention advantage, Matamoros was a comparatively minor part of Civil War interbelligerent trade. More often, the exchange was directly across enemy lines. The practice became important about a year after the opening shots at Fort Sumter, in spring 1862, as the cotton-trading centers at New Orleans and Memphis were captured. When Union Major General Benjamin Butler arrived in New Orleans with fifteen thousand occupation soldiers in May 1862, his net worth was about $150,000, but six years later it was $3 million. Although the lawyer-general was too shrewd to incriminate himself, there is little doubt the gain was primarily achieved by trade with the enemy.5 By summer 1862, Union Major General William T. Sherman at Memphis complained that Northern traders were buying Southern cotton for gold, which he believed the Rebels next used to buy weapons at Nassau in the Bahamas and even in Cincinnati. In an August 1862 letter to his brother Senator John Sherman of Ohio, General Sherman wrote, “Cincinnati furnishes more contraband goods than [leading blockade-running port] Charleston, and has done more to prolong the war than the state of South Carolina.”6 A few months later, Major General Ulysses Grant captured Confederate cavalry in northern Mississippi armed with modern carbines evidently purchased at occupied Memphis.7

  Ladies were not excluded from such trade and were sometimes especially effective. They were generally held less accountable for violations, and soldiers were hesitant to physically search them. For example, while Union Captain Julius Ochs was assigned to a unit guarding the St. Louis-to-Cincinnati railroad, his wife was caught trying to smuggle quinine in a baby carriage across an Ohio River bridge to Rebels in Kentucky. Somehow Captain Ochs got the charges dropped, but his wife's dedication to the South persisted. After the war, she joined the United Daughters of the Confederacy while her husband became a member of the Grand Army of the Republic, a Union veterans organization. Their eldest son, Adolph, became a Chattanooga, Tennessee, newspaperman. Shortly before the turn of the nineteenth to the twentieth century, Adolph bought a failing New York newspaper, added the words “All the News That's Fit to Print” to its masthead, and launched the New York Times toward national prominence.8

  Men are seldom motivated to enlist as soldiers merely to fight a war for economic gain. A higher calling is required to justify leaving their homes and risking their lives in a fight requiring them to shoot to kill strangers who normally have done them no harm. In spring 1861, the concept of “Union” became sufficiently noble to qualify as such a calling in the North. Southerners simply rallied to the equally high-sounding notion of “independence.” Both terms were facades. The North wanted an intact Union in order to sustain its emerging economic supremacy, whereas the South wanted independence with slavery.

  Without the South's raw materials and favorable export trade balance, business leaders in the North justifiably worried that the economies of the states remaining in the Union after Southern secession might collapse. Ten days before South Carolina led the Southern states into secession on December 20, 1860, the Chicago Daily Times editorialized on the calamities of disunion:

  In one single blow our foreign
commerce must be reduced to less than one-half what it now is. Our coastwise trade would pass into other hands. One-half of our shipping would be idle…. We should lose our trade with the South, with all its immense profits. Our manufactories would be in utter ruins…. If [our protective tariff] be wholly withdrawn from our labor…it could not compete with the labor of Europe. We should be driven from the market and millions of our people would be compelled to go out of employment.9

  Such worries had validity, as President Abraham Lincoln hinted in his first inaugural address: “Physically speaking we cannot separate. We cannot remove our respective sections…. [The two sides] cannot but remain face-to-face and intercourse, either amicable or hostile, must remain between them.”10 It's unlikely that Lincoln realized just how prophetic his conclusion would become as trade continued—and sometimes even flourished—during four years of bitter warfare between the two regions.

  To understand how a dissected Union bereft of between-the-lines trading could lead to economic collapse in the North, it is necessary to examine world cotton markets on the eve of the Civil War, as well as the commercial relations between North and South. Such is the objective of chapter 1. Cotton textile manufacturing was the world's biggest industry, and it was largely dependent upon the Southern states for feedstock. Southern cotton alone accounted for about two-thirds of all US exports.11 A truncated country composed solely of Northern states could not hope to maintain a favorable international balance of payments. The situation would be exacerbated if the Southern states ceased to be a market for Northern manufactured goods, which would be likely given the Confederacy's adoption of lower import tariffs.12

  However, the cotton-trading pattern also created intersectional dependencies in the South. The Southern focus on cash crops, such as cotton and tobacco, left it with a need to buy wheat, corn, and pork, which were abundantly available from states northwest of the Ohio River.13 (Now generally referred to as the Midwest, this area was then known as the Northwest.) Similarly, the South depended on outside sources for nearly all manufactured articles. While such goods could be imported from Europe, protective tariffs in the United States often made domestically produced alternatives from the North more economical. Initially, the South required provender from the Northwest more than the North needed cotton. That changed quickly as New England's cotton inventories dwindled and Lincoln discovered he could use the purchase of the staple to curtail the outflow of gold from the Treasury because cotton could be exported for exchange credits abroad.

  Because trade between the belligerents was almost a certainty, chapter 2 describes the regulations each side adopted in efforts to control it in a manner optimal to its interests. Generally, Confederate president Jefferson Davis looked the other way out of necessity, whereas Lincoln looked the other way out of policy.

  While the Confederate Congress tried to restrict the export of cotton to the North, it never outlawed trade with states remaining in the Union. It was silent on the matter of imports because the necessities of life were often more readily available to Southern civilians on the far side of enemy lines than through the blockade.14 The regulations of Lincoln's government were more convoluted because of conflicting interests. Prohibition on trade would leave destitute whites and former slaves in federally occupied regions of the Confederate states with no means of economic support. But less altruistically, New England mills wanted feedstock to keep their factories running and workers employed. For diplomatic reasons, Lincoln wanted enough cotton to slip out of the country to avoid a cotton famine in Europe that might otherwise provoke Old World intervention in the American war.15

  The first opportunity for the North to secure significant quantities of cotton materialized about six months after the opening shots at Fort Sumter on April 12, 1861. In November 1861, a combined federal navy and army force occupied the Sea Islands near Port Royal, South Carolina. The area was famous for copious production of long-staple Sea Island cotton. Chapter 3 describes the Port Royal Experiment, which used former slaves from among the ten thousand who remained behind after the occupation to raise cotton. It was hoped the ex-slaves could be more productively employed as free laborers on cotton plantations managed by capitalistic Northerners. Although not sufficiently productive to suppress interbelligerent trade, the Port Royal Experiment was followed by similar undertakings promoted by Northern civilians that might enable them to occupy and operate similar plantations in other parts of the Confederacy. Textile mogul Edward Atkinson advocated Texas as a target, while wealthy abolitionist and fellow Massachusetts resident Eli Thayer favored Florida.16 Such advocacy was partly responsible for later military adventures, such as Louisiana's Red River expedition and Florida's Olustee campaign.17

  Following the occupation of Port Royal, the next surge of intersectional trade developed in Matamoros, Mexico. Chapter 4 explains how shippers from the Northern states used the legal loophole in the federal blockade noted earlier to circumvent the prohibition against selling contraband to the enemy. They merely pretended their cargoes were destined for Mexico, whereas they were actually used to supply the Confederacy. The chapter also investigates the states' rights policies of Mexico that made such trade possible against the will—for a time—of the central government in Mexico City.18

  Chapter 5 is devoted to the surge of intersectional trade that grew after Memphis and New Orleans were captured by Union forces just before summer 1862. Both cities were near the center of the world's richest cotton-growing lands. General Butler assumed command in New Orleans, where he was a forceful proponent of trading with the enemy, partly because he was the biggest shareholder in one of the largest textile mills in Massachusetts.19

  Contrary to popular belief, cargoes entering the Confederacy through the blockade were not necessarily from Europe.20 Although about twice as much cotton reached the North across enemy lines as was shipped to Europe through the maritime blockade, it is important to realize that some merchants in the Northern states also traded through the blockade.21 Chapter 6 describes a variety of evasions used. One method was to first ship cargoes to Halifax, Nova Scotia, where they could be converted into “Canadian” merchandise prior to running the blockade. On return, Confederate bales could be transformed into “Canadian cotton” at Halifax and then shipped to New York or other northeastern ports.22

  After Butler established a reputation as the maestro of wartime intersectional trade in New Orleans, he transferred his aptitudes to Norfolk, Virginia, where he was given command of the occupied port in November 1863. Chapter 7 describes how he once again utilized family members and associates from his New Orleans days to promote trade across enemy lines. In the final months of the war, following the Union capture of the South's last major blockade-running port at Wilmington, North Carolina, Confederate General in Chief Robert E. Lee's besieged army at Petersburg received most of the vital supplies from Butler-controlled Norfolk.23

  After the fall of the Confederate fortress at Vicksburg, Mississippi, in summer 1863, Rebel states west of the Mississippi River were isolated. Since Union gunboats patrolled the river, it was almost impossible to relocate a Rebel army from one side to the other. It was even difficult to transfer a modest amount of supplies across it, and the Union blockade curtailed transport across the Gulf of Mexico. Consequently, the Confederate Trans-Mississippi Department became almost a nation unto itself. With headquarters in Shreveport, Louisiana, Lieutenant General Edmund Kirby Smith was not only the ultimate military authority for the vast region, but he also controlled important aspects of civilian life. Chapter 8 clarifies how the Confederate Trans-Mississippi figured simultaneously into French ambitions in North America and a free-for-all of intersectional trade as a result of the region's inability to obtain adequate supplies by any other means.24

  Chapter 9 tells how Lincoln threw wide open the gates of wartime intersectional commerce in the final year of the war. During the second half of 1864, efforts by Congress and the military to throttle such trade put a strain on the Treasu
ry's gold reserves. The president believed that one way to slow the drain was to require that cotton be purchased only with greenback currency (US Treasury notes), which was not backed by gold. When cotton was purchased for gold or specie, the currency would inevitably find its way to international markets, where it would be used to purchase munitions and weapons for the Confederacy. Conversely, when Northerners bought cotton with greenbacks, no specie was transferred to the South. Additionally, cotton obtained with Treasury notes might optionally be exported to Europe in exchange for goods, specie, or gold bullion. Finally, Lincoln believed that a proliferation of greenbacks in the South would provide a powerful economic incentive among residents to favor reunification with the North.25

  Among the points summarized in the conclusion are that the Confederacy benefitted more from interbelligerent trade than did the North and that the practice lengthened the war.26 While there were admittedly some altruistic and diplomatically acceptable reasons for Northerners to engage in such trade, the chief motivation was the mercenary gain to be derived from its extraordinary profitability. During the war, cotton prices climbed as high as $1.90 per pound, compared to about 13 cents prior to the war. For those willing to set aside morality in exchange for personal economic advantage, the profits were irresistible, particularly when favored access to available inventories could be secured by means of political connections, bribery, or military status.27 Efforts to stop it were as futile as King Canute's command to hold back the waves.28 Historian Merton Coulter concluded, “Business morality reached a very low ebb.”29

  Investigation of the reasons for the North's decision to fight in order to prevent disunion reveals the central explanation for persistence of interbelligerent trade. While a calling to fight for “preservation of the Union” is noble sounding, like most belligerent motivations it is grounded in economics. Specifically, a truncated Northern Union would continue to need cotton feedstock and the South's export engine in order to sustain economic success. In short, it required Southern trade in order to prosper. That is why such commerce continued even across battle lines.