The Warfare State

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The formation of an internal revenue system was but one part of a larger Civil War revolution in the nation’s finances. In February 1862 Congress enacted the Legal Tender Act, authorizing the Treasury to issue $150 million in notes—“greenback dollars” not covered by hard coin. The creation of a national paper currency forever altered the monetary system of the United States. As the historian James McPherson writes, “It asserted national sovereignty to help win a war fought to preserve that sovereignty.” Desperate for capital to support Union armies, the Lincoln administration sought to create a captive source of credit by issuing the new greenbacks only to banks that would purchase large quantities of federal bonds. To qualify, the banks had to agree to accept federal regulation and charters; thus almost overnight a national banking system came into being. It has been with us ever since.

As in all American wars, the Civil War ushered in important new governing institutions, not only the Internal Revenue Bureau but also the Department of Agriculture, the Bureau of Immigration, and the National Academy of Sciences, founded in 1863 in the hope of harnessing science for the war effort. Such institutions encouraged the development of science and industry and the mechanization of agriculture. As Allan Nevins has cogently argued, one of the most important effects of the war was to transform an unorganized nation into an ever more organized one.

During the Civil War federal authority intruded into the lives and violated the rights of American citizens as never before. Two weeks after Fort Sumter Lincoln suspended habeas corpus in Maryland; he eventually suspended it in other states as well, resulting in thousands of arrests without judicial process. His administration introduced national conscription for the first time under the Enrollment Act of March 3, 1863, and the draft ignited the largest civil insurrections in American history outside the Civil War itself. Scores perished in the rioting, including thirty-eight federal draft officials. Union troops fresh from the victory at Gettysburg were required to restore order to New York City, where the worst violence occurred. The ability of the federal government to enforce the draft and prosecute the war effort despite sometimes bitter opposition at home permanently altered the relationship between Americans and their national government.

World War I irreversibly stimulated collectivist thinking and public support for federal solutions to public problems and so helped pave the way for the New Deal, with its statist approach to economic recovery.
 

What it did not do, however, was turn the United States into a centralized, highly bureaucratic state, like those of Europe. The end of the war brought a precipitous demobilization, a quintessential act of American exceptionalism and the precise opposite of what happened in Germany five years later, after it achieved national unity in war. Within less than a year after Appomattox, the Army had shrunk to only 57,000 men. The federal bureaucracy also contracted, though not so drastically; in 1871 there were still 6,222 civilian employees in Washington, far fewer than during the war but still double the pre-war figure. The Presidency retained little of the prestige or authority it had had under Lincoln. Andrew Johnson, his immediate successor, was impeached and lost virtually all power to a radical Congress; the next President, General Grant of wartime fame, ran an ineffectual administration mired in corruption. No European state had ever demobilized so quickly or totally after a major war; in Europe it is assumed that the adversary will live to fight another day. In America the traditional pattern of geographical isolation and weak central government reasserted itself.

The continuing weakness of the American state after the war can be seen in the rapid decline of federal power in the South and the failure of Reconstruction. The federal government’s main agents for effecting change in Southern society were the federal Army and the Freedmen’s bureau. At peak strength the bureau had only 900 agents in the South. It was impotent without military backing, yet by 1867 the Army had barely 15,000 soldiers in the South. This represented one soldier per 725 inhabitants, hardly a ratio conducive to wielding effective federal power. By 1870 the number had declined to 6,600; by 1876, to 3,000. The U.S. military presence barely sufficed to police large cities, appoint and remove governors, censor the press, and supervise elections, but it was woefully inadequate to protect the rights of former slaves, much less remake the fabric of Southern society, which resented and resisted it at every step.