The Institutional Risk Analyst

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Juneteenth and Wall Street

June 21, 2021 | In this issue of The Institutional Risk Analyst, we comment on the refusal of the largest US banks to support the emancipation of slaves during the Civil War. The holiday now recognized nationally as Juneteenth, when federal forces made freedom a reality for millions of slaves in America, is significant for Wall Street. Why? Because the big banks in Boston, New York and London did not support “Lincoln’s War.”


The large state-chartered banks that existed in 1860 mostly were against the war of emancipation because it would interfere with the cotton trade, which was one of the largest export industries in the US in the early 1800s. American traders imported between 30,000 and as many as 100,000 enslaved Africans each year during the late 1700s and early 1800s to support the cotton trade and other agricultural endeavors. The big banks in Boston, New York and London financed this hideous trade in human beings.


William Edward Burghardt Du Bois (1868-1963)


The slave model of agriculture was “reckless,” to recall W.E.B. Du Bois in his classic Harvard University dissertation, “The Suppression of the African Slave Trade in the United States (1638-1870).” His meticulous description of the economics of slavery and the battle to suppress it exposed the fact that financing the slave trade was profitable for many banks and companies in the north.


When President Abraham Lincoln entered Washington as the new President in March of 1861, the Treasury was empty and the federal army had been paid and sent home. To finance the war to end slavery, Lincoln tasked a character named Jay Cooke to act as agent to sell Treasury bonds. Cooke became the foremost money lender of his day, but decades later went bust trying to buy the Northern Pacific Railroad.


Lincoln’s Treasury also issued unconvertible “greenbacks” (there was no central bank), that had no connection to gold. Of note to crypto enthusiasts, the laws declaring the unconvertible paper dollar “legal tender” were passed in 1862 and 1863. In 1860, total US government debt was $65 million, but by the end of the conflict the total federal debt was $2.6 billion. Hundreds of millions in unbacked paper money was issued to float the cost of the conflict.