Trading with the Enemy Read online

  Every bale sold meant additional guns and ammunition for the Rebel cause; every transaction spelled additional credit in England for the purchase of ships and supplies…[Stanton] maintained that anyone found trading with the enemy should be shot. Agreeing with him were most of the professional army officers…. According to this point of view not a single bale of cotton would have been allowed to leave the dockyards or depots of the South until the rebellion had been completely crushed.17

  When the cotton shortage in Europe was becoming its severest, Lincoln's cabinet met to consider what should be done. Attorney General Edward Bates summarized the legal point favoring the military and supported it during the session: “[T]o trade with the public enemy is to give that enemy aid and comfort—and if that be a crime in the individual it is folly in the Government for which it will be sure…to pay the penalty.”18

  Nonetheless, New England textile mills persistently hungered for cotton, and Lincoln was compelled to consider other perspectives. Secretary of State William Seward and Treasury Secretary Salmon Chase each voiced one.

  Seward realized that if at least some cotton did not leak through the blockade, a European cotton famine was a genuine threat that could become severe enough to prompt European intervention on the side of the South. As early as July 1862, Senator Orville Browning of Illinois recorded Lincoln as saying, “England wants us to permit her to get $50 million worth of cotton from the South.”19 While Europeans might abide a moderate shortage, acute cotton starvation could threaten their economic and political stability. Such a threshold was approached early in 1863, when some British districts reported 40 percent of their workers unemployed and on relief.20 The court of Louis-Napoléon Bonaparte (Napoleon III) was particularly apprehensive because older citizens still remembered the Reign of Terror following the French Revolution.21

  Secretary Chase appreciated that Southern cotton alone accounted for two-thirds of American exports in 1860.22 The war, and the federal blockade of Southern ports, sharply curtailed those exports. This wasn't just a problem for the textile industry; the Union could not hope for a favorable trade balance without cotton. Given that gold was the international settlements standard, the situation could strain the Treasury, which would erode America's international status and also invite foreign recognition of the Confederacy.

  Newspaper editorials from the Northeast underscored such concerns. Lincoln was a regular reader of the Washington Chronicle, which noted that the acquisition of cotton in the Northern states would bolster the gold standard and improve American credit overseas. With the largest Civil War era circulation, the New York Herald similarly proclaimed, “Our mills need cotton. Every bale of it reduces the price of gold and so sustains the government and mitigates the distress caused by a depreciated currency.” The New York Commercial Advertiser identified a related factor by observing that Southerners “want money” to buy the necessities of life. “Take their cotton and give them greenbacks and they will speedily feel the force of the old tie” to the Union.23

  Finally, there was also a humanitarian impulse. Once Union armies occupied parts of the Confederacy, intersectional trade was almost the only way that ex-slaves and destitute whites—including those loyal to the Union—avoided starvation. As a result of the poverty left behind after Confederates withdrew from western Tennessee, Major General Henry Halleck wrote that the cotton trade was a matter of “extreme necessity.” A Western Sanitary Commission founder commented, “Hundreds of women and children in this vicinity are in a starving condition.” Retreating Confederates had taken everything “even to the last milch cow.”24

  Slaves and former slaves were similarly affected. After reporting that federal troops had confiscated 700 acres of his corn, 150 of his cattle, and 400 of his hogs, a Southern planter sought permission to buy a sizable quantity of bacon to feed the hundred slaves wishing to remain on his plantation. Otherwise he desired to turn them over to federal authorities because he did not want them to starve.25

  For five months after the formation of the Confederacy in February 1861, Congress imposed no restrictions on intersectional trade. However, a week before the First Battle of Bull Run in July, an act passed prohibiting “commercial intercourse” with the insurrectionary states except as provided by licensed exemptions directed by the president. A month later, Lincoln declared that such permits would be issued through the Treasury Department. Unfortunately, the lucrative profits available in cotton trade inevitably subjected the permitting process to influences of political favoritism that invited bribery and other forms of corruption. Lincoln would later complain that if an intelligent angel were to observe White House conversations, “I think he would come to the conclusion that this war is being prosecuted for [the purpose of] obtaining cotton from the South for Northern cotton mills.”26 Treasury agents were to supervise the activities and were ordered to confer with the generals commanding the applicable departments. However, the agents and licensed traders were only partially responsible to such generals because they reported directly to the Treasury Department.27

  In May 1862, Congress authorized the Treasury secretary to refuse clearance to ships with cargoes ultimately destined for the Confederacy, although Secretary Chase had already effectively adopted the policy a year earlier. If suspicious that cargoes headed for neutral destinations such as Nassau were really intended for the Confederacy, US customs officials could require the shipper to post a bond equal to the value of the cargo. The bond was to be refunded when the US consul at the destination port verified that the cargo went to neutral buyers. Unfortunately, bonds were sometimes refunded (“repurchased”) with bribery amounting to a small fraction of the bond value, and the “neutral buyers” were often middlemen who sold to blockade-runners.

  Previously a senator from Ohio, Chase was politically ambitious. Many suspected he hoped to win the presidency in 1864. In 1860, he and Seward were the leading traditional contenders at the Republican presidential convention that ultimately selected Lincoln as the party's candidate. As a result of the deficit spending necessitated by the Civil War, Chase promoted a paper currency act that resulted in the issuance of greenbacks as legal tender even though they had no gold backing. In furtherance of his political ambitions, some of the greenback denominations featured his face on the bills. That is one reason why only images of dead people are currently allowed on US currency and postage stamps.

  Chase's political ambitions steadily increased tensions with Lincoln. The secretary resented interference from the president and submitted his resignation multiple times before summer 1864, only to have Lincoln decline to accept it. However, after Lincoln secured his party's 1864 presidential nomination, Chase tendered his resignation one too many times, in protest over Lincoln's objection to Chase's selection of a new customs director in New York harbor. The president accepted the resignation. However, toward the end of that year, Lincoln eliminated Chase as a political adversary by appointing him to the Supreme Court, and he became chief justice of the United States.28

  While managing interbelligerent trade, Chase was never convicted of improprieties, but there were questionable connections, which will be discussed more fully later. During the war his eldest daughter, Kate, married Rhode Island's governor and later US senator, William Sprague. The man owned one of the country's biggest textile mills, with nine plants. As early as spring 1862, Sprague's name was connected with behind-the-lines cotton trading.29 Chase also appointed a relative named George Denison as a Treasury agent in New Orleans. Although the youth was initially suspicious and vigilant of the commerce involving General Benjamin Butler and his brother, Denison later became a bribe taker.30 Historian James Ford Rhodes concluded, “Chase was a poor judge of men and made bad appointments.”31

  One of Chase's first biographers from the nineteenth century, Albert Bushnell Hart, summarized the secretary's performance on the matter of wartime intersectional commerce:

  The administration of the Treasury during the war has no more unsavory
side than the scramble for permits and the collusion of military officers in getting property from the enemy's lines; yet for no object did the secretary more honestly bestir himself than to regulate the trade. The circumstances were too much for him, as they were for the most upright commanders in the field.32

  A couple of years after the flaws of the August 1861 regulations became evident, Chase attempted to gain more control over articles entering the rebellious states via overland trade. New regulations were adopted on September 11, 1863, establishing “special agencies” in occupied regions. Within such agencies, authorized private citizens were allowed to operate stores, much like Indian trading posts, enabling nearby residents to buy and sell merchandise. The stores were permitted to sell a limited monthly dollar volume of merchandise to civilians, but they could buy unlimited amounts of whatever residents offered for sale, including cotton. Volume limitations on items sold to Southerners could be inflated by specifying them as “plantation supplies” as opposed to “family supplies.” Historian Merton Coulter wrote, “The abuses of the trading stations were so flagrant as to cause an honest person to lose faith in the integrity of his fellow man.” One member of an investigating House Commerce Committee said, “If I were to mention the facts, they would make the cheek of every American Senator tingle with shame.”33

  By summer 1864, it was clear that the Treasury practice of issuing permits to individuals for the purpose of trading in cotton was rife with corruption. Congress concluded a better method was to only allow Treasury agents (i.e., government employees) to buy cotton. The agents could then resell the cotton at auctions where the ultimate buyers would presumably be domestic textile makers or firms seeking to export raw cotton overseas. Therefore, on July 2, 1864, Congress passed the Purchasing Act, which withdrew the president's power to issue permits to private citizens.

  However, with the cooperation of Treasury Secretary William Fessenden, who had replaced Chase in early July 1864, Lincoln cleverly sidestepped the proscription with a set of Treasury Department implementation rules. Specifically, the September 24, 1864, rules allowed anyone who owned goods behind Confederate lines to bring them into designated federally occupied depot cities and sell them to a Treasury agent. Since “any person whatsoever” could “bring in” merchandise, the stipulations essentially enabled individual Northern traders to continue operating, only in a different manner.

  They could (1) infiltrate Confederate lines, (2) buy cotton from the original Rebel owner, even if it was the Confederate government, and (3) bring the purchased items (e.g., cotton, tobacco, turpentine) into a federally occupied depot, where it could be sold to a Treasury agent. Furthermore, the Lincoln-Fessenden rules required that proceeds to the seller be paid in US greenbacks equal to three-fourths of the market price at New York. Although it represented a 25 percent discount, the New York selling price was still far above what was paid behind Rebel lines.

  Such rules nullified the intent of the Purchasing Act. In fact, they enabled more independent businessmen to become cotton traders. All that was required was the audacity to infiltrate the frontier, negotiate attractive purchase contracts with the enemy, and transport the acquired goods to a federal depot. While permits to transport cotton would help to physically get it through the lines, unlike the earlier Treasury permits, they did not give the holders a privileged right to trade it. No doubt, bribery was a common means of securing safe infiltration into enemy territory and obtaining access to military wagons, vessels, or railroads to get the cotton to a destination depot. The greenback requirement reflected Lincoln's intention that such trade spread a preference for US paper currency throughout the South, thereby weakening Confederate influence.34

  Although cotton supplies might be acquired by confiscation, both Lincoln and Congress initially moved cautiously in order to avoid alienating the border states early in the war before they were firmly under Union control. The First Confiscation Act of August 1861 only permitted confiscation of property actively employed to resist federal authority. Thus, slaves and cotton bales used in construction of Rebel fortifications could both be confiscated as contraband. But cotton in the form of baled inventory or crops in the field could not be confiscated. However, the Second Confiscation Act eleven months later permitted the confiscation of any property owned by Confederate citizens, whether they were civilians or soldiers. Thus, under the second act, a planter whose family was in rebellion to federal authority could lose his property—including slaves and cotton—to confiscation.35

  Another reason the quantities of cotton obtained through confiscation were less than federal authorities hoped was that Northern traders would buy eligible inventories before they could be captured. The traders were so hungry for cotton profits they would even buy confiscation-eligible stocks owned by the Confederate government. Although such stocks were undeniably subject to confiscation, corrupted traders would turn their heads while bales marked “C. S. A” had their marking removed in order to pretend they were owned by holders whose properties could not be legally confiscated, such as Union-loyal citizens. By July 1864, it is estimated that two-thirds of the cotton awaiting shipment north was sold by the Confederate government. By then, the blockade had sufficiently tightened that the Confederacy would sell directly to the enemy and accept US currency as payment.36

  In addition to the Confiscation Acts, Congress passed the Revenue Act of August 6, 1861, which included a direct tax on properties aimed at raising $20 million for the federal government. Each state was assigned a proportionate share of the $20 million based on its population. Financial assets such as stocks and bonds were exempt properties, although real estate and slaves were included in the taxable base. Therefore, the tax was unpopular in states with many small farmers and especially the Union-loyal border states where slavery was legal. Finally, it permitted properties in all states—including those in rebellion—to be seized for nonpayment of taxes, although there was initially no mechanism for collecting the taxes in the insurrectionary states.

  Therefore, an act of June 7, 1862, authorized Lincoln to appoint tax commissioners for each Confederate state. The commissioners were empowered to calculate the taxes due on each property within such states that were also within Union occupation lines. Delinquent owners had sixty days to pay the tax, plus a 50 percent penalty. If the tax and penalty were not paid by the deadline, the commissioners could seize the underlying real estate and sell it at auction. Although written as a tax law, it was really a pretext for confiscation that was sometimes even more effective than the First or Second Confiscation Acts.37

  Because overland intersectional trade was an alternative to maritime blockade-running, it is necessary to examine the legal status of the federal naval blockade. Immediately after the shooting started in April 1861, Lincoln and Seward sought to block international commerce to Southern states. However, they desired to do so in a manner least likely to inflame tensions with European powers. During discussions with European diplomats in Washington prior to the war's opening shots, Seward came to understand that conformance with the Declaration of Maritime Law, which was a component of the 1856 Treaty of Paris ending the Crimean War, would likely provide the least antagonistic way to block international commerce to Southern ports. Although the United States was not among the fifty-five signatories to the Paris agreement, Great Britain and France were. Therefore, Lincoln and Seward decided to formulate their plans on the declaration, which provided two ways to shut down maritime trade to selected American ports. First was to close the ports, followed by action of US Navy ships to collect duties and penalties on the high seas from neutral vessels violating the closure. Second was a formal blockade.38

  Initially, Lincoln and Seward preferred the closure option because it avoided an implied recognition that Southern ports were part of a separate nation. However, there were two problems with closing the harbors. First, the Constitution specified that all ports must be treated equally. The president lacked the legal authority to close some and leave ot
hers open.39 Second, Lord Richard Lyons, the British envoy to Washington, had earlier warned Seward that closing the ports was a worse option than a blockade because it increased the probability of a high seas confrontation between a neutral carrier and a US warship. Two days after Sumter surrendered, Lyons wrote to Lord John Russell, the British foreign secretary in London:

  A regular blockade would be less objectionable than…closing the Southern Ports…. The rules of blockade are to a great extent determined and known…. But if the US are to be permitted to seize any ship of ours wherever they can find her within their jurisdiction on the plea that by going to a Southern port she has violated the US customs laws, our commerce will be exposed to vexations beyond bearing…. It would certainly justify Great Britain and France in recognizing the Southern Confederacy and sending their fleets to force the U.S. to treat British and French vessels as neutrals in conformity with the laws of nations.40

  By the end of April 1861, the federal government had announced a blockade that would cover all Confederate ports from Virginia to Texas. The British reacted the following month with the Queen's Proclamation of Neutrality, which officially classified the Confederacy as a belligerent, but not a diplomatically recognized country. Thus, Rebel ships in British and colonial ports were thereafter allowed to obtain fuel, supplies, and repairs. The commerce raiders Alabama, Florida, and Shenandoah were examples of Rebel ships that would utilize such provisions. As a belligerent, the Confederacy was also permitted to buy weapons and supplies from neutral countries. However, Queen Victoria clarified that the 1818 Foreign Enlistments Act, which prohibited British subjects from joining a belligerent navy and signified that any British ship running a blockade did so at its own risk, would also apply to the situation in America. Thus, her government would not seek the release of captured blockade-runners.41