In essence, the domestic production of the South eliminated the need for the United States to export valuable metals to obtain goods. Since cotton, tobacco, rice, sugar, and flax were used to obtain the English goods, the production of the South was the currency of the trade of the country.
Those in power in the government that understood the necessity of a successful economic strategy, including the incoming President, Abraham Lincoln, knew that a large population of inexpensive workmen was needed to provide a domestic labor force that would produce the agricultural products to be exported. In his first inaugural speech, President Lincoln flatly stated that he would not interfere with slavery where it currently existed. He knew that the economic system of production should not be disturbed, and he promised not to change that status if the Southern states would remain in the Union.
By the 1850s, over 95% of the total revenue collected by the Treasury department was from tariff revenues. The expenses of the government, including operations, the military, and internal projects, were essentially totally financed by tariff revenue. When the Southern Confederacy was formed, not only was the revenue stream of the US Treasury broken, but the government would need to borrow.
The finances of the Federal Government had been in a very disordered condition due to business downturns resulting from the political disturbances, and which by reducing the imports of overseas goods, had reduced the customs income, the chief source of revenue for the Treasury.
In June, 1860, a loan of twenty million dollars had been authorized by Congress. Of this amount, ten million was offered in October in a five per cent stock, and it had been taken by investors at a small premium.
Before any installments were paid up, the panic that attended the election had affected credit, and many bids were withdrawn.
This so seriously affected the Treasury Department, that as the New Year approached, it seemed likely there would be no funds with which to meet the interest on the National debt.
By the Act of December 17th, 1860, an issue of ten million dollars, in treasury notes, was authorized, to bear such a rate of interest as might be offered by the lowest bidders, but so shaken was credit, few bids were made, and some of them at a rate of thirty six per cent interest per annum.
The capitalists interested in the Government credit finally took one million five hundred thousand dollars of one year treasury notes, at twelve per cent per annum (the amount was subsequently raised to five million dollars), on condition that the money should be applied to paying the interest on the national debt.
This was certainly a dark day in the Capitol, when the Federal Government, which had earned the honor of being the only nation that had ever paid its debts in full—principal and interest—and which in 1856, with an overflowing treasury, had paid twenty-two per cent premium for its own stock, was now reduced to give twelve per cent interest, for a few millions, and to engage to protect its credit with the money.
Or could it have been because Lincoln knew he did not have the authority to interfere with it, or sufficient support to change the Constitution to give him that authority? But accepting it where is was is a far cry from tolerating its expansion into the territories, and in that Lincoln was completely opposed.
When the Southern Confederacy was formed, not only was the revenue stream of the US Treasury broken, but the government would need to borrow.
I would disagree that the revenue stream was broken. Reduced, certainly, by as little as 5% in best case scenario, or as much as 25% in the worst case. But the majority of the tariff income would still be flowing into the government coffers. And the government had borrowed in the past.
This was certainly a dark day in the Capitol, when the Federal Government, which had earned the honor of being the only nation that had ever paid its debts in full—principal and interest—and which in 1856, with an overflowing treasury, had paid twenty-two per cent premium for its own stock, was now reduced to give twelve per cent interest, for a few millions, and to engage to protect its credit with the money.
Rather an overstatement.