Battle Cry of Freedom: The Civil War Era (92 page)

Opponents also questioned the expediency, morality, even the theology of the legal tender bill. Such notes would depreciate, they said, as the Revolutionary continentals had done and as Confederate notes were even then depreciating. "The wit of man," said Democratic Congressman George Pendleton of Ohio, "has never discovered a means by which paper currency can be kept at par value, except by its speedy, cheap, certain convertibility into gold and silver." If this bill passed, "prices will be inflated . . . incomes will depreciate; the savings of the poor will vanish; the hoardings of the widow will melt away; bonds, mortgages, and notes—everything of fixed value—will lose their value." One banker insisted that "gold and silver are the only true measure of value. These metals were prepared by the Almighty for this very purpose."
³⁵

Supporters of the bill exposed the hollowness of such arguments. "Every intelligent man knows that coined money is not the currency of the country," said Republican Representative Samuel Hooper of Massachusetts. State banknotes—many of them depreciated and irredeemable—were the principal medium of exchange. The issue before Congress was whether the notes of a sovereign government had "as much virtue . . . as the notes of banks which have suspended specie payments."
³⁶

By early February most businessmen and bankers had become convinced of the necessity for the legal tender bill. So had Treasury Secretary Chase and Finance Committee Chairman Fessenden. "I came with reluctance to the conclusion that the legal tender clause is a necessity," Chase informed Congress on February 3, 1862.
"Immediate action is of great importance. The Treasury is nearly empty."
Fessenden considered the measure "of doubtful constitutionality. . . . It is bad faith. . . . It shocks all my notions of political, moral, and national honor." Nevertheless, "to leave the government without resources in such a crisis is not to be thought of." Fessenden voted for the bill.
³⁷
So did three-fourths of his Republican colleagues in Congress, who readily overcame

34
.
CG
, 37 Cong., 2 Sess., 523, 525.

35
.
Ibid
., 551; Hugh McCulloch,
Men and Measures of Half a Century
(New York, 1888), 201.

36
.
CG
, 37 Cong., 2 Sess., 691; Sharkey,
Money, Class, and Party
, 32.

37
.
CG
, 37 Cong., 2 Sess., 618; Fessenden quoted in Hammond,
Sovereignty and an Empty Purse
, 213–14.

the three-fourths of the Democrats who voted against it. With Lincoln's signature on February 25, the Legal Tender Act became law.

This act created a national currency and altered the monetary structure of the United States. It asserted national sovereignty to help win a war fought to preserve that sovereignty. It provided the Treasury with resources to pay its bills, it restored investor confidence to make possible the sale at par of the $500 million of new 6 percent bonds authorized at the same time, and unlocked the funds that had gone into hoarding during the financial crisis of December. All these good things came to pass without the ruinous inflation predicted by opponents, despite the authorization of another $150 million of greenbacks in July 1862. This brought the total to $300 million, nearly equal to the amount of Confederate Treasury notes then in circulation. But while the southern price index rose to 686 (February 1861 = 100) by the end of 1862, the northern index then stood only at 114. For the war as a whole the Union experienced inflation of only 80 percent (contrasted with 9,000 percent for the Confederacy), which compares favorably to the 84 percent of World War I (1917–20) and 70 percent in World War II (1941–49, including the postwar years after the lifting of wartime price controls). While the greenbacks' lack of a specie backing created a speculator's market in gold, the "gold premium" did not rise drastically except in periods of Union military reverses. During the four months after passage of the Legal Tender Act, the gold premium rose only to 106 (that is, 100 gold dollars would buy 106 greenback dollars).

Three main factors explain the success of the Legal Tender Act. First: the underlying strength of the northern economy. Second: the fortuitous timing of the law. It went into effect during the months of Union military success in the spring of 1862, floating the greenbacks on a buoyant mood of confidence in victory. The third reason was the enactment of a comprehensive tax law on July 1, 1862, which soaked up much of the inflationary pressure produced by the greenbacks. The Union ultimately raised half again as much war revenue from taxes as from the issuance of paper money—in sharp contrast with the Confederate experience.
³⁸

The Internal Revenue Act of 1862 taxed almost everything but the air northerners breathed. It imposed sin taxes on liquor, tobacco, and

38
. The total value of greenbacks issued was $447 million. Taxes during the war amounted to nearly $700 million.

playing cards; luxury taxes on carriages, yachts, billiard tables, jewelry, and other expensive items; taxes on patent medicines and newspaper advertisements; license taxes on almost every conceivable profession or service except the clergy; stamp taxes, taxes on the gross receipts of corporations, banks, insurance companies, and a tax on the dividends or interest they paid to investors; value-added taxes on manufactured goods and processed meats; an inheritance tax; and an income tax. The law also created a Bureau of Internal Revenue, which remained a permanent part of the federal government even though most of these taxes (including the income tax) expired several years after the end of the war. The relationship of the American taxpayer to the government was never again the same.

The Internal Revenue Act was strikingly modern in several respects. It withheld the tax from the salaries of government employees and from dividends paid by corporations. It expanded the progressive aspects of the earlier income tax by exempting the first $600, levying 3 percent on incomes between $600 and $10,000, and 5 percent on incomes over $10,000.
³⁹
The first $1,000 of any legacy was exempt from the inheritance tax. Businesses worth less than $600 were exempt from the value-added and receipts taxes. Excise taxes fell most heavily on products purchased by the affluent. In explanation of these progressive features, Chairman Thaddeus Stevens of the House Ways and Means Committee said: "While the rich and the thrifty will be obliged to contribute largely from the abundance of their means . . . no burdens have been imposed on the industrious laborer and mechanic. . . . The food of the poor is untaxed; and . . . no one will be affected by the provisions of this bill whose living depends solely on his manual labor."
⁴⁰

Whether northern wage-earners appreciated this solicitude is hard to tell. By the time the internal revenue act went into effect many of them were suffering the pinch of inflation. While far less serious than in the South, price increases did cause an average decline of 20 percent in real wages of northern workers by 1863 or 1864. In classical economic theory, the labor shortage caused by a wartime decline of immigration and by the enlistment of workers in the army should have enabled wages to keep up with the cost of living, if not exceed it. Three factors seem to have prevented this from happening. The first was some slack

39
. Revised in 1864 to 5 percent on incomes from $600 to $5,000; 7½ percent from $5,000 to $10,000; and 10 percent on incomes over $10,000.

40
.
CG
, 37 Cong., 2 Sess., 1576–77.

in the economy left from the aftershocks of the Panic of 1857 and a renewed panic and downturn caused by secession in 1861, which meant that a labor surplus did not become a labor shortage until 1862. Second, a wartime speedup in mechanization of certain key industries helped alleviate the tight labor market: for example, more reapers and mowers for harvesting grain and hay were produced during the war than ever before, easing the demand for agricultural labor; the sewing machine multiplied the productivity of seamstresses making army uniforms and other clothing; and the Blake-McKay machine for sewing uppers to the soles of shoes reduced the time consumed in that process one hundredfold. Third was a great increase in the employment of women, in occupations ranging from government civil service and army nursing to agricultural field work and manufacturing. In agriculture, the increased use of farm machinery enabled women to fill much of the gap left by the enlistment of nearly a million northern farmers and farm laborers in the army. "I met more women driving teams on the road and saw more at work in the fields than men," wrote a traveler in Iowa during the fall of 1862. As evidence of "the great revolution which machinery is making in agriculture," reported another observer the following year, he saw "a stout matron whose sons are in the army, with her team cutting hay. . . . She cut seven acres with ease in a day, riding leisurely on her cutter." In northern industry women worked mainly in occupations where they were already prominent—textiles, clothing, shoemaking—but increased their proportion of the manufacturing labor force from one-fourth to one-third during the war. Because women earned much less than men for the same or similar jobs, their expanded proportion of the wartime labor force kept down the average of wage increases.
⁴¹

The wage lag behind cost-of-living increases fueled protests and strikes, especially in 1863–64. A good many strikes succeeded in winning substantial wage gains, especially in skilled trades and heavy industries where machinery and women could do little to redress a now-acute labor shortage. By the last year of the war real wages in many of these trades

41
. Quotations from Emerson D. Fite,
Social and Industrial Conditions in the North during the Civil War
(New York, 1910), 8; and George W. Smith and Charles Judah, eds.,
Life in the North during the Civil War
(Albuquerque, 1966), 167. For other sources on which this and the following paragraphs are based, see Philip S. Foner,
History of the Labor Movement in the United States
, Vol. 1 (New York, 1947); and David Montgomery,
Beyond Equality: Labor and the Radical Republicans
, 1862–1872 (New York, 1967).

had returned to prewar levels and were poised for postwar increases. For unskilled workers and women, however, low wages and inflation remained a searing grievance. "We are unable to sustain life for the prices offered by contractors, who fatten on their contracts by grinding immense profits out of the labor of their operatives," wrote a group of seamstresses—who in war as in peace were the most exploited group of workers—making army uniforms in 1864.
⁴²

Wartime activism and strikes, combined with labor's pride in its contribution to northern victory, caused an increase of worker militancy and organization. Several new national trade unions were organized during the war, and a number of labor newspapers sprang into existence, paving the way for the founding of the umbrella National Labor Union in 1866. The wartime impetus helped drive union membership to its highest proportion of the industrial labor force in the nineteenth century by the eve of the Panic of 1873. But that is a story for the next volume in this series.

III

The second session of the 37th Congress (1861–62) was one of the most productive in American history. Not only did the legislators revolutionize the country's tax and monetary structures and take several steps toward the abolition of slavery;
⁴³
they also enacted laws of far-reaching importance for the disposition of public lands, the future of higher education, and the building of transcontinental railroads. These achievements were all the more remarkable because they occurred in the midst of an all-consuming preoccupation with war. Yet it was the war—or rather the absence of southerners from Congress—that made possible the passage of these Hamiltonian–Whig–Republican measures for government promotion of socioeconomic development.

Having appealed to voters in the Northwest with a homestead plank in the 1860 platform, Republicans easily overcame feeble Democratic and border-state opposition to pass a homestead act on May 20, 1862. This law granted 160 acres of public land to a settler after five years' residence and improvements on his (or her, since the law made no distinction of sex) claim. Although the Homestead Act never measured up to the starry-eyed vision of some enthusiasts who had hoped to "give

42
. Montgomery,
Beyond Equality
, 97.

43
. For a discussion of slavery, see
Chapter 16
, below.