Nine

Eyes Tightly Shut

IN THE SECOND HALF OF 1864, BOTH THE FEDERAL CONGRESS and military tried to reduce illicit trade with the Confederacy. However, even as they were making progress toward curtailment, President Lincoln implemented policies to open interbelligerent trade wider than ever.

The Purchasing Act of July 2, 1864, which prohibited naval prize law on inland waters, also required that the initial buyers of items originating behind Confederate lines be employees (agents) of the US Treasury, as opposed to private citizens. (Previously the Treasury exclusively granted a limited number of private citizens authority to go beyond enemy lines, where they could buy cotton and other produce, transport it back to the Union side, and sell it on the open market.) As explained in chapter 2, Lincoln circumvented the intent of the Purchasing Act by specifying the manner in which Treasury Department regulations were to be applied. As implemented, Treasury rules applicable to the act permitted anyone delivering cotton to Treasury agents to be paid a greenback currency price equal to three-fourths of the market quote in New York.

Since greenbacks were not backed by gold, they traded at a significant markdown to specie. The discount was 60 percent in summer 1864.¹ Nonetheless, they were generally more valuable than Confederate money. Lincoln reasoned that a proliferation of greenbacks within the rebellious regions would promote loyalty to his government.

Thus, any Northerner could become a “cotton trader” by infiltrating into the Confederacy, purchasing cotton at whatever price might be arranged, and delivering it to Treasury buyers at depots such as Memphis and New Orleans, where the sales price was 75 percent of the New York market quote. Finally, after the transaction, sellers were authorized to return to the Confederacy with noncontraband supplies equal to one-third of the value the cotton sold to the Treasury agent. The ultimate consumers of cotton, such as the New England mills, were provided opportunities to buy the inventories thus accumulated in the depot cities at periodic auctions.

Lincoln's provision enabling traders to return to the Confederacy with supplies equal to one-third of the value of the sold cotton enabled traders to pyramid profits for two reasons. First, a great many noncontraband supplies, including food and clothing, were desperately needed by Confederate armies. At the time there was no clear definition of “contraband.” Second, the prices of the supplies traders were allowed to return beyond enemy lines were much higher in the Confederacy than in occupied depot cities. For example, bacon was only 22 cents a pound in Memphis but could bring six dollars a pound behind Rebel lines. Thus, traders returning with valued merchandise could use the supplies to purchase more cotton than they could afford on the previous trip. Therefore, accumulated profits would grow in a compounding manner following each round-trip.2

Lincoln found a second loophole to the restrictions of the Purchasing Act. Article 55 of the July 29, 1864, Treasury regulations stipulated that cotton previously bought and paid for could be brought within Union lines. The president and authorized Treasury officials could issue permits for such transport. Lincoln signed about forty. Those with his signature were more valued than ordinary Treasury Department permits and were sometimes sold, or even sublet. Such permits also enabled holders to sell their cotton at the full market price as opposed to the 25 percent discount otherwise required by the Purchasing Act.3

One permit issued by Treasury Secretary Fessenden was for thirty-five hundred bales in Mississippi for the seemingly ubiquitous William Butler. Another permit held by the Belgian consul in New Orleans authorized the diplomat to remove about twenty-three thousand bales. But in many instances the military blocked such movements. Evidently, several commanders were emboldened by the stance of Ulysses Grant, whose antitrade viewpoint became more influential after his appointment earlier in the year as the first US lieutenant general since George Washington, when Grant was simultaneously made general in chief. On September 13, Grant telegraphed Stanton, “[T]he amount of support received by our enemies through either the corruption of Treasury agents and post commanders is fearful, and should be stopped in some way.”⁴ Whether they knew of the wire to Stanton or not, most army generals were aware of Grant's hostility to trading with the enemy.

In any event, General Stephen Hurlbut told the Belgian consul that the military situation simply did not allow him to comply with Fessenden's permit. In New Orleans, General Canby seized all cotton entering his lines for later adjudication. Hurlbut, Canby, and other commanders effectively ignored Lincoln's directive strictly forbidding army or navy interference with cotton transactions applicable to Article 55.⁵

Consequently, on September 24, when Lincoln and Fessenden drew up Treasury procedures applicable to the Purchasing Act, they included a provision that any army or navy personnel interfering with the transportation of goods in either direction would be guilty of a military offense and punished accordingly. Treasury agents were instructed to accept applications from anyone saying they owned “or controlled” products beyond the lines. Such persons were to be granted a certificate identifying the goods to be conveyed, and agents were to request safe conduct for certificate holders. Finally, the procedures were to become effective when promulgated by the secretaries of war and the navy. War Secretary Stanton complied by October 6, but Navy Secretary Welles delayed until December 1.⁶

The delayed dissemination and other military steps used to restrict interbelligerent trade in the second half of 1864 frustrated Lincoln. He was particularly sensitive to the fact that, as in the Confederacy, cotton was an indispensible prop to the Union government's currency. In a letter to General Canby, Lincoln explained, “The way cotton goes now carries as much gold out of the country as to leave us [only] paper currency…[which] is so far depreciated as that for every hard dollar's worth of supplies we obtain, we contract to pay two-and-a-half dollars hereafter.”7

The president was arguing that Fessenden's Treasury requirement that cotton be purchased with greenbacks instead of specie would reduce the outflow of the nation's gold reserves that were so vital to its international financial status. Senator Wilson of Massachusetts commented in support of Lincoln's point by noting that US gold reserves declined about $5 million to $6 million to pay for overseas imports during autumn 1864, when generals like Canby and Hurlbut had curtailed between-the-lines trading.⁸

The floodgates opened after the military rules were promulgated. During the first two weeks of operation at Memphis alone, certificates were issued for nearly forty thousand bales. General Washburn, who was the brother of Illinois congressman Elihu Washburne, complained that the system was widely abused. (The brothers spelled their surnames differently.) He did not believe that one man in a hundred who claimed to own (or control) cotton behind the lines actually did own (or control) a single bale. He estimated that Memphis Treasury purchasing agent George Ellery had issued hundreds of fraudulent permits. In New Orleans, General Canby wrote sarcastically that the local Treasury agent had been so busy issuing permits that “every bale of cotton in the Rebel lines is covered by permits.”⁹

Ellery used other methods of leveraging his authority for personal gain. One was an illegal technique of enabling cotton sellers to avoid the mandatory 25 percent price discount to the New York cotton quote required by the Purchasing Act. For a fee, he would simply buy the cotton at 75 percent of the New York quote for a government account as required, but immediately resell it to those he bought it from for the same price. They could then sell it on the open market at the full New York quoted price. Evidently, Ellery felt that he should get his share of the largesse after discovering that others of higher rank were doing the same. For example, one merchant told Ellery that getting cotton out of the parts of Mississippi under the command of General Dana was accomplished by paying a fee to an attorney recommended by Dana's headquarters staff. The pertinent incident involved a fee of $25,000, but it was apparently a routine practice within Dana's domain.10

Leonard Swett, who helped engineer Lincoln's 1860 presidential nomination in Chicago, received three permits in December 1864 for one hundred fifty thousand bales. Swett's permits unrealistically covered cotton in every Confederate state except North Carolina and Virginia. Georgia planter Samuel Noble received a permit for two hundred fifty thousand bales. New Yorker Hanson Risley, who supervised all depot city Treasury agents, approved Noble's application. When questioned by a congressional investigating committee, Risley explained that Lincoln's bodyguard, Ward Hill Lamon, accompanied Noble and that the president also recommended the Southerner. In the three months from November 1864 through January 1865, Risley issued permits totaling nine hundred thirty thousand bales.¹¹ Most of the recipients were men recommended by Lincoln or New York political boss Thurlow Weed, who was also a thirty-year political ally of Secretary of State Seward.¹²

Risley's acquaintance with Seward also predated the war. After the war, Seward became infatuated with Risley's daughter Olive, who was in her mid-twenties when the secretary was in his late sixties. In an effort to stop tongues wagging, Seward adopted Olive when he was seventy years old.

Ward Hill Lamon recommended his own brother, Robert, for three permits totaling fifty thousand bales. One of Robert's Chicago business partners, James Patterson, wrote Ward Lamon that a permit holder told him “such permits are obtained by proper influences” and asked that Ward provide Patterson a permit in Robert's name. Patterson concluded, “I can make more money than a jackass can carry, but it must be through your instrumentality.” Ward Lamon became a part of the scheme and soon sought permits of his own. In his request, he reminded the president of the administration's “unceasing…[determination] to deprive the Confederacy of its greatest element of material strength and…to make…cotton the basis of this government's currency: for cotton is gold.”13

Even Vice President Hannibal Hamlin (replaced by Andrew Johnson on the 1864 ticket) sought to profit from intersectional trade. Expecting to share in the proceeds, Hamlin asked Lincoln to provide a 23,640-bale permit to Fergus Penniston authorizing him to transport the cargo through enemy lines into Union-controlled territory. Lincoln obliged with a note advising all army, navy, and civil officers to provide Penniston “all the facilities that may be required to carry out the design of this permit.”¹⁴

Few Northerners were better able to gain cotton-trading favors than Thurlow Weed. He had a well-earned reputation for influence peddling and profiteering. Lincoln was anxious to win New York in the 1864 presidential election because his margin in the state four years earlier was only seven thousand votes. In September 1864, one of Lincoln's private secretaries, John Nicolay, reported learning that Weed intended to raise money for the president's campaign by dealing in cotton.¹⁵

That same month, a Weed associate named Draper was appointed customs collector for the port of New York. In December, when General William T. Sherman occupied Savannah, where nearly forty thousand cotton bales were warehoused,¹⁶ Draper was sent to the city to take charge of the supply. Navy Secretary Welles was “sickened.” He complained, “The mission of Draper will be a swindle. A [preferential] ring will be formed for the purchase of the cotton, regardless of public or private rights.” Presumably, Welles believed that the ring would be permitted to buy the cotton on bargain terms. Weed had a long association with fellow New Yorker Risley, who had wide powers to negotiate cotton-purchasing contracts. Some of the contracts were arranged at Weed's headquarters in room 11 of the Astor House in New York.¹⁷ The New York Chamber of Commerce “reminded” the federal government that Southerners owed the businessmen of New York City unsettled accounts from the early days of secession amounting to $150 million.18

After occupying Savannah, General Sherman could attest to the veracity of a Mark Twain aphorism: “None but an ass pays a compliment and asks a favor at the same time. There are many asses.”¹⁹ The general was almost immediately swamped with compliments for his “march to the sea” and flooded with gifts from the North, including cases of fine bourbon, and Humboldt cigars along with invitations to visit elegant New York homes. Some favor seekers were more subtle, and perhaps more successful. Among them might have been those approaching the general through his brother John, who was a senator from Ohio. For example, the senator provided a written introduction for one Daniel Rees, explaining that Rees had “been a fast friend & contributed to my election as Senator.” Given that cotton was trading at about a dollar per pound in December 1864, Savannah's forty thousand bales were worth about $20 million, which is equivalent to almost $300 million in 2013 dollars.²⁰

The temptation among Northern politicians to use influence for profit in cotton trading during the last year of the war proved irresistible to a number of people with otherwise constructive reputations. Among them were some who are highly regarded by modern historians. One example is Thomas Corwin, who had been a governor of Ohio and one of its US senators. He had also served for a time as Treasury secretary under Millard Fillmore.

As minister to Mexico, Corwin significantly aided the Union war effort by keeping the ultimately ascendant Liberal Party under Benito Juarez mostly allied with Lincoln's government. Although he persistently dangled unfulfilled proposals of monetary aid to Juarez, Corwin was decidedly more effective than his Confederate counterpart, John Pickett, who was recalled by Richmond after compiling an embarrassing record. But Corwin's tendency for influence peddling also surfaced as he was serving in Mexico. One of his first acts was to negotiate a monopolistic pact for regular steamship service between New York and Veracruz through a line in which he was a part owner.²¹

In September 1864, Lincoln's friend William Butler commented, “old Tom Corwin has squat at the door of the Treasury & through [Assistant Treasury Secretary George] Harrington is levying blackmail at a fearful rate.” Harrington was a long-time Treasury Department employee and worked for Corwin when the latter was secretary of the Treasury. When Corwin and Harrington tried to make Butler pay $10,000 for a cotton-trading permit, Lincoln's friend declined and warned he would complain to the president if the two refused to execute the papers without a bribe. Butler claimed that Harrington was a partner in the Memphis cotton brokerage of E. Parkman, Brooks, & Company, which was given a permit for fifteen thousand bales exempted from the restrictions of the Purchasing Act. Within less than two months, Confederate General Kirby Smith reported the same firm offered to buy fifteen thousand cotton bales directly from him at the bargain price of thirty cents per pound in specie when the market price was over one dollar per pound. Kirby Smith said Parkman “brings the authority of the President and Secretary of the Treasury of the United States for the transaction.”22

Later, Corwin admitted he obtained a fifteen-thousand-bale permit for Parkman. He also acknowledged that he secured a permit for Texas military governor Andrew J. Hamilton, who was previously involved in questionable between-the-lines trading. Finally, Corwin was the attorney for notorious contraband trader George Lane, who patronized General Butler, a virtuoso of interbelligerent trade. Characteristic of patterns established earlier in the war at New Orleans, the general's own brother-in-law was a business partner to Lane.²³

Another politician-turned-lobbyist who attempted to profit late in the war was former Illinois senator Orville Browning. He was an old Lincoln friend who had been appointed to fill the seat of Stephen Douglas, who died of illness in summer 1861. Browning failed to keep his seat in the November 1862 general election when a wave of antiwar sentiment swept the states north of the Ohio River. In the last months of the war, Browning schemed to buy sizable quantities of tobacco and cotton in Richmond and Wilmington in partnership with another Illinois politician, James Singleton. Since they proposed to use greenbacks, Lincoln did not object. Unfortunately for Browning and Singleton, the Confederacy collapsed before they could complete their transaction. The Rebel produce that had been inventoried for them behind enemy lines went up in smoke as the Confederate armies evacuated.24

Singleton represented himself as a private peace emissary. He claimed to have met with “Rebel Commissioners” in Canada in November 1864. Singleton told Browning they informed him that Lincoln might be able to negotiate surrender terms that would include extinction of the Confederacy by reunification. Given Browning's introduction, Singleton asked Lincoln for permission to travel to Richmond to learn if such terms were realistically attainable. Singleton claimed to have reached Richmond, where he said that there was a large sentiment for liberal surrender terms but that Davis and other leaders would not agree. He so informed the president on returning, but added that he also contracted to buy large amounts of tobacco with greenbacks.

Singleton claimed Lincoln replied that he “wanted to get out all [the tobacco and cotton] he could, and send in all the greenbacks he could in exchange.” According to Singleton, Lincoln further explained that such trade would benefit impoverished Southerners and encourage them to seek peace with reunion. The president instructed Risley to give Singleton a pass and informed General Grant that he approved of Singleton's enterprise. Upon hearing rumors that Singleton was actually going to supply Lee's army with bacon, Grant seized a tobacco shipment erroneously thought to be Singleton's and asked that the permit be revoked. Bowing to a rising volume of complaints from Grant and others, Lincoln gave Grant authority to unilaterally prohibit between-the-lines trading anywhere east of the Appalachians. Consequently, Singleton was blocked and soon sank into obscurity.²⁵

By January 1865, the US Congress became sufficiently frustrated to launch a joint Senate-House investigation of trade with the Confederacy. The results were reported on March 1, 1865, by Illinois congressman Washburne, who was one of Grant's political proponents from the earliest days of the war. The conclusions of the House report, Trade With the Rebellious States, were condemning. Intersectional trade was described as a “disgraceful scramble for wealth” that prolonged the war and “cost thousands of lives.” Although apparently sanctioned under the letter of the law, much of the trade was “for the use of Rebel armies.” The report recommended more restrictive legislation, which was adopted two days later with only three dissenting votes in the Senate and none in the House. The bill was intended to shut down trade until the end of the war. Given the one-sided favorable votes in the Senate and House, nearly everyone was surprised when Lincoln rejected it by pocket veto.26

As the war approached an end, America's cotton market became a shameful feeding frenzy of greed dominated by abuse of power concentrated in the hands of a comparative few who in the full judgment of history are nearly indistinguishable from thieves. A month before Lee's surrender at Appomattox, Hugh McCulloch was appointed Lincoln's third Treasury secretary. He soon despairingly observed, “I am sure that I sent some honest cotton agents South, but it sometimes seems very doubtful that any of them remained honest very long.”²⁷ The restraints were too weak compared to the rewards, while the temptations were overpowering.

Upon securing an appointment, a dishonest Treasury purchasing agent was practically granted a license to steal. As historian Robert Selph Henry discovered, “an alert, hard-working and reasonably ingenious cotton agent could earn for himself as much as $80,000 a month—[making] the $25,000 which one deputy agent admitting paying for his commission seem like a pretty good speculation.”²⁸

At the end of the war, an estimated five million bales lay inventoried in the South. US Treasury agents sent throughout the South to take possession of “abandoned” property and items owned by the Confederate government seized about three million bales. Although the prime aim was to collect cotton, the agents would grab whatever could be sold. Historian Merton Coulter summed up a number of swindles:

 

The brazen dishonesties practiced by these agents almost surpass belief…. In Savannah alone, out of $21 million worth of cotton sold, they handed over to the U. S. Treasury only $8 million…. An agent in Texas forced a woman to sell for $75 a bale her 400 bales worth $200 each…. Another agent who had an interest in a steamboat refused to let a planter move his cotton unless he shipped it on the agent's craft.

…[T]wo of the greatest cotton thieves were Simon Draper, general cotton agent for the Atlantic and Gulf states, with headquarters in New York City, and William P. Mellen, agent for the interior with offices in Cincinnati. They seized cotton indiscriminately and then allowed the owner to recover part for a quitclaim on the remainder…Draper, who had been bankrupt when he received his appointment, became a millionaire after a few years…. William Chandler, Assistant Secretary of the Treasury, in charge of cotton seizures, entered upon his work poor, but emerged worth hundreds of thousands of dollars. Many got rich, few were punished.29

 

During the final months of the war, desperate conditions in the South also led humanitarian instincts to authorize trade that might otherwise have been denied. In one instance, Lincoln was approached directly by a Baptist minister, Rev. Thomas Teasdale, who was a representative of the Mississippi State Orphans Home. Before the war, Teasdale had served temporarily at a church in Lincoln's hometown and was warmly recognized by the president.

Teasdale asked permission to ship cotton purchased with Confederate money through the lines to New York, where it could be sold to purchase supplies for the orphanage. The pastor formalized his request by presenting a petition by the orphanage board describing the impoverished conditions and endorsed on the back by President Jefferson Davis. Evidently offended by the Davis endorsement, Lincoln responded by explaining that economic shortages were intentionally employed to motivate Southerners “to give up this wicked rebellion.” Teasdale replied that “the hapless little ones” were not perpetrators of the war but merely victims of it. Lincoln softened, replying, “That is true and I must do something for you.”30

Lincoln wrote a note to General Canby in New Orleans, authorizing—but not ordering—the general to accommodate Teasdale. The president then endorsed the back of the orphanage petition, encouraging the secretaries of war and the Treasury to meet with Teasdale regarding his “praiseworthy effort.” Lincoln wrote his endorsement below that of Davis, thereby transforming the document into perhaps the only one to have the signatures of both Davis and Lincoln in their capacities as presidents.³¹

On May 22, 1865, thirty-seven days after taking office following Lincoln's assassination, President Andrew Johnson announced that all Southern ports, except a few in Texas, would no longer be blockaded and instead be freely open to commerce on July 1. Europe was eager to buy cotton, and Southerners badly needed the potential revenues from their once-mighty cash crop. But it was not to be. Instead of a flow of money in and cotton out, the hopeful scenario vanished owing to ravenously greedy politicians, corrupted Treasury employees, and dishonorable military commanders.

Under an act of May 9, 1865, lawful sales of cotton were burdened with extra fees. For example, there was a 25 percent fee for cotton that had been raised by slaves, in addition to a revenue and transportation tax. Even if the cotton were raised by free labor, there was still a revenue tax of 2.5 cents per pound and a transportation fee of 4 cents per pound. The tax and fee were paid by the producer merely for the privilege of moving his cotton to market. Cotton inventories owned by the Confederate government, or due to the Rebel government under taxes-in-kind or tithes previously applicable in the Confederacy, were forfeited to the US Treasury.

Identification of bales into the proper categories was subject to various frauds. For example, whether the cotton was “Confederate” or “private” was often questionable. “Debates” were often decided against private owners unless they paid a bribe to a Treasury agent. But the method could be expensive because a number of agents and military commanders took such bribes sequentially in the same regions. A second abuser may choose to deny the validity of the certificate issued by the first, thereby leaving the owner with little choice but to pay a second bribe with no ability to obtain a refund for the first one. Sometimes legitimate owners had to find a local rogue who had been recognized as loyal to the Union during the war to officially swear that he was the true owner of the cotton while secretly demanding a split in the proceeds when the cotton was sold.32

Another deceitful method was to “pluck” cotton under shipment. A toll was taken on bales sent to market by removing cotton from each bale while misleadingly delivering the specified number of bales. For example, a five-hundred-pound bale leaving the gin might only weigh three hundred pounds at its destination, but would still be falsely represented as a full bale upon delivery. Under this scenario, the loser was the Treasury, which received undersized cotton bales. A variation of the technique was to assign only bales of the poorest quality cotton to the federal government while reserving the best quality bales for buyers willing to pay a bribe or make some similar arrangement to share profits with a Treasury agent.³³

A culture of abuse became acceptable for those with power and influence. Tennessee journalist Harvey Watterson wrote to President Johnson, “So many parties, official and unofficial, were engaged in stealing cotton” that it was impossible to know how much was stolen. The more famous Whitelaw Reid of the New York Tribune, who toured the South at the close of the war wrote “the practice [is to regard] everything left in the [defeated South] as the legitimate prize of the first officer who discovers it…. In general, our people seem to go upon the theory that, having conquered the country, they are entitled to the best it has, and [are] duty bound to use as much of it as possible.” ³⁴

Cotton previously owned by the Confederate government was supposed to be sent only to designated agents in New York and Cincinnati, where it was to be sold and the proceeds deposited in the Treasury. It is estimated that as many as three million bales were seized from the South up to the middle of 1866. Given prices prevailing at the time, the value of such a quantity should have been about $400 million to $500 million. Instead, the Treasury realized only about $30 million from the fraction of about one hundred fifteen thousand bales that survived the twisted ordeal of bribery, corruption, fraud, and theft.35