Closely related to the importance of the industrial output at home was the necessity to finance the growing needs of the war. While the men were away fighting, those who remained at home soon became aware of the enormous amounts of money required to support the war in the field and the federal and local governments at home. This task was accomplished by the persistent efforts of Jay Cooke. In January 1861, the Philadelphia financier, with his brother-in-law, William G. Moorhead, organized the firm of Jay Cooke and Company. This firm was brought to the attention of the new secretary of the treasury, Salmon Chase. After successfully selling some of Chase’s earliest loans, Cooke was offered the position of assistant treasurer of the United States in Philadelphia soon after the outbreak of the war. Cooke initially refused this offer, admitting that his main object was the selling of government notes and bonds. About the middle of May 1861, the state legislature, sitting in an extra session, passed an act that called for the organization of an army for state defense, to be designated as the Pennsylvania Reserve Volunteer Corps, or Pennsylvania Reserves. In order to equip and maintain this command, the legislature had authorized a $3 million loan at 6 percent interest. As the state credit was low, due to previous and somewhat reckless expenditures for internal improvements, it was thought that the loan could not be sold at par, a condition included in the act. However, Mr. Cooke intervened and volunteered to sell the loan at par, which he thought was possible. Accordingly on May 28, 1861, Governor Curtin commissioned the firms of Jay Cooke and Company and Drexel and Company to organize the work, and in a little over two weeks the entire loan was sold, much to the surprise and gratification of the governor.191
Jay Cooke’s Bank was located on South Third Street next to the old Girard Bank. From here, Cooke helped to finance the war effort. GAR Museum Collection.
Jay Cooke again visited the Philadelphia bankers after the disastrous defeat of the Union army at the First Battle of Bull Run in June 1861 in an effort to secure additional money for the government to be advanced for a period of sixty days. The lenders were asked to take their payment not in hard currency but in “seven-thirty” government notes. These were treasury notes that ran for three years with an interest rate of 7 3/10 percent per annum, or $7.30 a year on each $100.00. The earliest seven-thirty bond issue Jay Cooke made famous by continuous and extensive advertising. During this period, Secretary of the Treasury Chase—whom Cooke had known through Chase’s friendship with Cooke’s brother William, an influential newspaper editor in Ohio—held various conferences in Washington, Philadelphia and New York that resulted in the formation of the Associated Banks, a group of banks in those three cities that agreed to advance $50 million to Chase and the government and to follow this loan with additional ones in October and December, if the rebellion persisted. In all, they promised to loan the government $150 million, an enormous sum for the times.192
One of the most popular locations for the subscription of seven-thirties in Philadelphia was Cooke’s office, which he opened at 114 South Third Street, next to the old Girard Bank. As the war continued and constantly demanded additional funding, the banks found it difficult to keep their agreement to pay $50 million more dollars. When the December payment came due, with the result that the hard currency system collapsed, Secretary Chase found it necessary to issue paper money, called greenbacks, to pay the debt.
While Philadelphia citizens were purchasing seven-thirty bonds, the newspapers warned their readers to guard against what was termed a “new method of swindling.” Certain guilty parties obtained a number of bonds of the seven-thirty loans and, after cutting off the coupons, endeavored to sell the bonds at par or at a slight reduction to unsuspecting purchasers, who discovered sorrowfully that bonds minus coupons paid no interest to the holder.
Early in 1862, while the country remained on a paper money basis and inflation became rampant, Secretary Chase unsuccessfully attempted to sell another issue of bonds called “five-twenties.” These bonds, bearing interest in gold, were so designated because they might be redeemed in five years and must be redeemed in twenty years. Offered at par in greenbacks, which only paid forty to ninety cents in gold, the bonds proved to be unpopular until October 1862, when Jay Cooke was made the sole national agent. By the end of the following March, the daily subscription rate was estimated to be $1 million. It had been planned to close the loan when the sum of $500 million was procured, and the date set for the end of the sales period was January 21, 1864. However, before the machinery that Mr. Cooke had created could be stopped, an additional $11 million worth of bonds was sold, making the total amount for the loan $511 million.193
Throughout the war, the efforts of Cooke and other private financiers such as A.J. Drexel continued unabated on the national level and contributed immensely to the successful financing of the war effort, thereby making Cooke, Drexel and the others very wealthy men.