"The Exhausted Condition of the Treasury" on the Eve of the Civil War

The Civil War fiscal crisis began before April 12, 1861. The U.S. Treasury tottered in a state of "utmost confusion" months before Edmund Ruffin shot at the troops holed up in Fort Sumter.¹ Traditionally the "dynamic center" of government, the Treasury now faced "being placed before the world in the aspect of a mendicant."² The department's secretary, John A. Dix, notified Congress on February 11, 1861 that "little more" than $500,000 remained in the central depository in Washington. Demands for $2 million "unanswered" requisitions had accumulated in the department, with $6 million more due to public creditors in early March. Dix predicted a $21.6 million shortfall by the end of the fiscal year. Staff in most executive departments could not draw their salaries that January. Members of Congress had gone unpaid since the start of the session the previous December. Worse yet, according to Dix, "The War and Navy departments have calls for large requisitions [that] have been delayed on account of the exhausted condition of the Treasury."³

"To understand the measures to be submitted to [the Thirty-seventh] Congress, it is necessary to have a clear conception of the condition of the Treasury at that time, and of the established financial policy of the government immediately before the war," asserted John Sherman (R-Ohio).⁴ Yet historians rarely include the state of the prewar Treasury in their assessment of the Civil War financial legislation. Most studies of Civil War finances offer only a brief mention of the "unsatisfactory condition of the Treasury in 1860," then proceed with an analysis of the wartime legislation. Little consideration is given to the problems inherited by the new Republican administration or the government's financial structure at the outbreak of the war.⁵ In fact, one noted scholar has declared that "the modern state's inheritance from the antebellum period was nil."⁶

Contrary to this precedent, I argue that the state of the Treasury in early 1861 greatly influenced the development of wartime financial policy. Four difficulties in particular challenged the Republicans. First, the spendthrift policies of the Buchanan administration critically reduced the balance in the Treasury and forced them to rely on deficit financing. By 1860, the "Buchaneers" had created the largest debt ever accumulated by an administration without engaging in war. When the fighting began, the Republican Treasury secretary, Salmon P. Chase, found a reluctant and therefore expensive market for wartime securities. Because the Union started the war with an exhausted Treasury and poor credit, they had few resources available to deal with the setbacks of late 1861 that resulted from the contingencies of war. This necessitated the introduction of the high interest rate seven-thirties; when this loan faltered, the Republicans had to turn to more controversial financing strategies. These measures resulted directly from the "poverty of the Treasury" at the onset of the war.

Third, in an effort to address the deficiencies in the Treasury, the Thirty-sixth Congress passed legislation to increase government revenue. Congress passed this bill, known now as the Morrill tariff, at the urging of President Buchanan, to address the "exhausted condition of the Treasury." This point has not been emphasized enough. Indeed the established literature suggests that the tariff adjustment occurred as the "first statement of a new protectionism peculiar to the Republicans."⁷ However, Buchanan signed the Morrill tariff into law on March 2, 1861, during the last days of the Thirty-sixth Congress and two days before Abraham Lincoln's inauguration. Rather than initiate the advent of a new brand of protectionism, the impetus for revising the tariff arose as an attempt to augment revenue, stave off "ruin," and address the accumulating debt.⁸

Finally, I argue that the "fiscal federalism" that emerged in the United States during the antebellum era placed severe constraints on the options open to the Treasury when the war began. Expected to operate with economy, and relying overwhelmingly on tariff revenue as the primary source of income, the national government had few ready options available in the...