Proving that necessity breed's invention, Secretary of the Treasury Salmon P. Chase persuaded Philadelphian banker Jay Cooke to commandeer the North's financial front for the Civil War, this week in 1861.

Post Lincoln's Presidential election, an already depressed stock market offered very limited, if any, monetary resources to fund the Nation’s costly efforts. Chase devised an interest-bearing scheme to raise capital, and reached out to established Union friendly banking houses for help in launching the plan.

On July 12, 1861 Jay Cooke notified Secretary Chase that his company, in partnership with Drexel & Company, would immediately open "a first class Banking Establishment" in Washington DC to manage and sell an interest bearing loan portfolio for the Federal government. In turn, the Philadelphians would receive commission fees for their services.

Fortunately, Cooke was a natural salesman and quickly corralled a nationwide team of 2,500 salesmen, connected by the newly invented telegraph machines, to sell nearly $3 billion in war bonds to the wealthy and middle classes. The bonds were paid for by Chase's currency, the "Greenbacks" which arrived on the scene courtesy of the "The Legal Tender Act" (1862).

Civil War fiscal strategies were watershed occurrences in that a uniform, national currency not backed by specie (gold or silver); the standard at that time…was confidently installed.

Chase's Treasury also created another legacy, the first income tax (August 1861).

This Week in Wall Street History

7/7/08