The fall of Vicksburg is always seen as one of the great turning points in the war. And yet, from a financial point of view, it was really not the decisive one. The key event had happened more than a year before, two hundred miles downstream from Vicksburg, where the Mississippi joins the Gulf of Mexico. On 29 April 1862 Flag Officer David Farragut had run the guns of Fort Jackson and Fort St Philip to seize control of New Orleans. This was a far less bloody and protracted clash than the siege of Vicksburg, but equally disastrous for the Southern cause.
The finances of the Confederacy are one of the great mighthave-beens of American history. For, in the final analysis, it was as much a lack of hard cash as a lack of industrial capacity or manpower that undercut what was, in military terms, an impressive effort by the Southern states. At the beginning of the war, in the absence of a pre-existing system of central taxation, the fledgling Confederate Treasury had paid for its army by selling bonds to its own citizens, in the form of two large loans for $15 million and $100 million. But there was a finite amount of liquid capital available in the South, with its many self-contained farms and relatively small towns. To survive, it was later alleged, the Confederacy turned to the Rothschilds, in the hope that the world's greatest financial dynasty might help them beat the North as they had helped Wellington beat Napoleon at Waterloo.
The suggestion was not altogether fanciful. In New York, the Rothschild agent August Belmont had watched with horror as the United States slid into Civil War. As the Democratic Party's national chairman, he had been a leading supporter of Stephen A. Douglas, Abraham Lincoln's opponent in the presidential election of i860. Belmont remained a vocal critic of what he called Lincoln's 'fatal policy of confiscation and forcible emancipation'. Salomon de Rothschild, James's third son, had also expressed pro-Southern sympathies in his letters home before the war began. Some Northern commentators drew the obvious inference: the Rothschilds were backing the South. 'Belmont, the Rothschilds, and the whole tribe of Jews . . . have been buying up Confederate bonds,' thundered the Chicago Tribune in 1864. One Lincoln supporter accused the 'Jews, Jeff Davis [the Confederate president] and the devil' of being an unholy trinity directed against the Union.4 2 When he visited London in 1863, Belmont himself told Lionel de Rothschild that 'soon the North would be conquered'. (It merely stoked the fires of suspicion that the man charged with recruiting Britain to the South's cause, the Confederate Secretary of State Judah Ben j amin, was himself a Jew.)
In reality, however, the Rothschilds opted not to back the South. Why? Perhaps it was because they felt a genuine distaste for the institution of slavery. But of at least equal importance was a sense that the Confederacy was not a good credit risk (after all, the Confederate president Jefferson Davis had openly advocated the repudiation of state debts when he was a US senator). That mistrust seemed to be widely shared in Europe. When the Confederacy tried to sell conventional bonds in European markets, investors showed little enthusiasm. But the Southerners had an ingenious trick up their sleeves. The trick (like the sleeves themselves) was made of cotton, the key to the Confederate economy and by far the South's largest export. The idea was to use the South's cotton crop not just as a source of export earnings, but as collateral for a new kind of cotton-backed bond. When the obscure French firm of Emile Erlanger and Co. started issuing cotton-backed bonds on the South's behalf, the response in London and Amsterdam was more positive. The most appealing thing about these sterling bonds, which had a 7 per cent coupon and a maturity of twenty years, was that they could be converted into cotton at the pre-war price of six pence a pound. Despite the South's military setbacks, they retained their value for most of the war for the simple reason that the price of the underlying security, cotton, was rising as a consequence of increased wartime demand. Indeed, the price of the bonds actually doubled between December 1863 and September 1864, despite the Confederate defeats at Gettysburg and Vicksburg, because the price of cotton was soaring.4 3 Moreover, the South was in the happy position of being able to raise that price still further - by restricting the cotton supply.
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