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Blood Money: The Civil War and the Federal Reserve
Paul Craig Roberts

Continuing from the prior column John Remington Graham’s thesis that the mis-named “civil war” was fomented by bankers who desired a large national debt that they could acquire in order to exand and contract currency and credit and thus control the econony and government, I present today with permission Graham’s analysis of the repeal, in effect, of the Missouri Compromise.

The Missouri compromise was put in place by statesmen determined to keep the North and the South, two separate countries with different legislative interests, in a state of even power in the US Senate. The compromise admitted Maine as a non-slave state and Missouri as a slave state.  Thus, North and South retained the same number of senators, which forced compromise if anything was to happen. 

Graham reports that this achievement was destroyed by Stephen Douglas’ ambition to become president. This ambition caused Douglas to conspire with railroad interests and their financiers against a railway that would serve southern interests. 

 In an effort to ameliorate southern opposition to his railroad dealings, Douglas, Chairman of the Senate Committee on Territories, secured the Kansas-Nebraska Act in 1854 which repealed the provision of the Missouri Compromise that prohibited slavery above 36 degrees 30 minutes north latitude. Some southerners went along with the Kansas-Nebraska act, and others regarded it as a blunder.

And blunder it was. Kansas Territory became inhabited by both the northern and southern ways of life. Banking interests financed a campaign of libel and hatred that resulted in civil war in the territory. The war was ended by southern statesmen who brought Kansas into the Union as a non-slave state.  That unbalanced the power in the Senate and made the passage of a high tariff possible.

The Morrill Tariff passed the Republican Congress on March 2, 1861, after Lincoln’s election and prior to his inauguration.  The declaration of war against the South passed Congress on July 25, 1861, five months later. In its first year, the Morrill Tariff increased the effective rate on dutiable imports by 70%.

The Morrill Tariff played a key role in secession. In his address to the South Carolina convention in December 1860, Robert B. Rhett said that as the southern states had minority representation in Congress, they were unprotected “against unjust taxation, and they are taxed by the people of the North for their benefit, exactly as the people of Great Britain taxed our ancestors in the British parliament for their benefit. For the last forty years, the taxes laid by the Congress of the United States have been laid with a view of subserving the interests of the North. The people of the South have been taxed by duties on imports, not for revenue, but for an object inconsistent with revenue—to promote, by prohibitions, Northern interests in the productions of their mines and manufactures.”

The New York Times opposed the Morrill Tariff partly on Adam Smith’s free trade grounds and partly for the reason that the tariff was imposing high duties at the very moment that the southern states saw the tariff as cause for secession. As secesson became more likely, the Times changed its position and advocated military action to force the South to pay the tariff.

Graham sees the civil war in the Kansas Territory as a “dress rehersal for the big event coming up.”

Transcontinental Railroads and the Repeal of the Missouri Compromise

Next came legislative adjustments in the Federal territories concerning the institution of slavery:  

In 1820 Missouri was admitted into the Union. The new State lay to the west of the Mississippi  River. On the other side of that great waterway,  the Ohio River and the Mason-Dixon Line distinguished the modern industrialized society in the Northern States, from the quasi-feudal agrarian society in the Southern States. While the two cultures could exist side by side on the same continental expanse, they could never be mixed, because each civilization was radically different from the other. Human beings are remarkably territorial. They will fight and kill for land to maintain a particular way of life.

If the latitude of the confluence of the Ohio and Mississippi Rivers were extended in a westerly direction as a continuing boundary between the Northern and Southern States, Missouri should have come into the Union without slavery. Yet, because the planter way of life was well entrenched in Missouri when she applied for admission to the Union, it was wholly impractical to prohibit slavery in the new State. 

Legislators from Northern States wanted to be sure that they would get a good piece of the Federal territories. It was not altruism, but a desire to preserve an adequate domain for their civilization that prompted this desire. They were indifferent to slavery as a moral question, but they knew that, if the institution were firmly implanted anywhere, it would be more difficult to implant their way of life  in that place.  

Under the guidance of Henry Clay, an accommodation was reached to allow the new State with slavery. The deal extended the southern boundary of Missouri, which was at 36 degrees 30 minutes north latitude, in a westerly direction, cutting the Federal territories in two parts. Below that line were Indian lands or Oklahoma and what became Texas upon her admission to the Union some years later, and there slavery was allowed by law. Above that line was then-unorganized territory, a major part of the Louisiana Purchase transacted in 1803, and there slavery was prohibited by law. In that unorganized territory just to the west of Missouri lay what later became Kansas, and to the north and west lay what later became Nebraska. 

This “Missouri Compromise” or Compromise of 1820 was considered by statesmen of the country as a solemn pact between the North and the South, enabling the two civilizations to co-exist within  the same Union.

Again under the guidance of Henry Clay, the Compromise of 1850 was reached to deal with the expanse of continent ceded two years earlier by Mexico to the United States. This legislation did not formally prohibit slavery in the new Federal territories, nor was such an interdiction necessary, because geography made it impossible to implant slavery to the south and west of the Nueces River in Texas, or into or beyond Oklahoma, or upon any part of the land acquired  from Mexico. 

Aging patriots made these arrangements to save the Union. The great ones among them — Henry Clay, Daniel Webster, and John Calhoun — died by the end of 1852, and slavery began to pass into the mists of history. All that was needed was the quiet passing of time. The inflammatory language of Uncle Tom’s Cabin stirred up passions, but even that baneful influence was not enough to prevent the Compromises of 1820 and 1850 from doing their merciful work, if only they remained untouched.   

But they were not left untouched. And the meddling hands, as with Uncle Tom’s Cabin, were again the hands of large banking houses, this time financing a grand transcontinental railroad, from the eastern end at Chicago through Iowa, then across the unorganized territory to the north and west of Missouri, and from San Francisco on the Pacific coast across territory ceded by Mexico until the two projects joined in Utah. The difficulty was that the South offered and wanted a shorter route from New Orleans through Texas, thence by the Gila Valley to San Diego. Stephen Douglas, Chairman of the Committee on Territories in the United States Senate, was ambitious to become President, and was supported in his ambition by the financiers behind the central route from Chicago to San Francisco.  As a quid pro quo, Douglas supported the central route which those financiers wanted. In order to buy off enough Southern votes to get the central route, Douglas secured the Kansas-Nebraska Act in 1854. This legislation established the Kansas Territory and the Nebraska Territory, and included a provision repealing the prohibition of slavery in the Louisiana Purchase above 36 degrees 30 minutes north latitude as ordained by the Missouri Compromise. 

There were great Southerners who opposed this sale of the Missouri Compromise to suit the demands of political ambition, railroad building, and high finance. Among them was Sam Houston of Texas. But enough Southerners went along, including some good men who did not appreciate the magnitude of the blunder. The repeal meant that the Kansas Territory, directly to the west of Missouri, was open to settlement both to people from the North, with their way of life, and people from the South, with their way of life. In the bulk of the Federal territories, such a possibility really would not matter, because the climate and terrain generally did not welcome slavery. But there was one exception, of all places within the Kansas Territory: in a small region along the Kansas and Missouri Rivers, hemp and tobacco might have been profitably grown and harvested by  slave labor. 

That was enough to bring people from both the North and the South into the Kansas Territory. As night follows day, a civil war broke out between the two populations in 1855, and it continued on and off over several years. Hatred had been incited by large banking houses financing libel, and a battle ground had been arranged by large banking houses financing a  railroad. The hostilities erupting in the new territory were a kind of dress rehearsal for the big event coming up. 

A lot of howling and posturing over “Bleeding Kansas” was stirred up by Salmon P. Chase of Ohio and Charles Sumner of Massachusetts in the United States Senate. Both of them were closely allied to Northern railroad, industrial, and financial interests, for it was practically impossible for anybody in the United States Senate from a State above the Mason-Dixon Line and the Ohio River not to have “conversations” with individuals representing such powerful concerns. But in spite of Chase and Sumner, the trouble in the Kansas Territory was settled, and  out of it came a new State admitted to the Union without slavery in 1861. The most interesting feature of this episode is that, not the likes of Chase and Sumner, but Southern statesmen caused the fighting to end in the Kansas Territory.  It was these Southern statesmen who caused peaceful voting to occur, votes to be honestly counted, and a new free State to enter the Union. They included especially Robert Toombs of Georgia in the United States Senate, and territorial governors Robert Walker of Mississippi and Frederick Stanton of Tennessee.  

Hon. Paul Craig Roberts is the John M. Olin Fellow at the Institute for Political Economy, Senior Research Fellow at the Hoover Institution, Stanford University, and Research Fellow at the Independent Institute. A former editor and columnist for The Wall Street Journal and columnist for Business Week and the Scripps Howard News Service, he is a nationally syndicated columnist for Creators Syndicate in Los Angeles and a columnist for Investor's Business Daily. In 1992 he received the Warren Brookes Award for Excellence in Journalism. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists.

He was Distinguished Fellow at the Cato Institute from 1993 to 1996. From 1982 through 1993, he held the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies. During 1981-82 he served as Assistant Secretary of the Treasury for Economic Policy. President Reagan and Treasury Secretary Regan credited him with a major role in the Economic Recovery Tax Act of 1981, and he was awarded the Treasury Department's Meritorious Service Award for "his outstanding contributions to the formulation of United States economic policy." From 1975 to 1978, Dr. Roberts served on the congressional staff where he drafted the Kemp-Roth bill and played a leading role in developing bipartisan support for a supply-side economic policy.

In 1987 the French government recognized him as "the artisan of a renewal in economic science and policy after half a century of state interventionism" and inducted him into the Legion of Honor.

Dr. Roberts' latest books are The Tyranny of Good Intentions, co-authored with IPE Fellow Lawrence Stratton, and published by Prima Publishing in May 2000, and Chile: Two Visions - The Allende-Pinochet Era, co-authored with IPE Fellow Karen Araujo, and published in Spanish by Universidad Nacional Andres Bello in Santiago, Chile, in November 2000. The Capitalist Revolution in Latin America, co-authored with IPE Fellow Karen LaFollette Araujo, was published by Oxford University Press in 1997. A Spanish language edition was published by Oxford in 1999. The New Colorline: How Quotas and Privilege Destroy Democracy, co-authored with Lawrence Stratton, was published by Regnery in 1995. A paperback edition was published in 1997. Meltdown: Inside the Soviet Economy, co-authored with Karen LaFollette, was published by the Cato Institute in 1990. Harvard University Press published his book, The Supply-Side Revolution, in 1984. Widely reviewed and favorably received, the book was praised by Forbes as "a timely masterpiece that will have real impact on economic thinking in the years ahead." Dr. Roberts is the author of Alienation and the Soviet Economy, published in 1971 and republished in 1990. He is the author of Marx's Theory of Exchange, Alienation and Crisis, published in 1973 and republished in 1983. A Spanish language edition was published in 1974.

Dr. Roberts has held numerous academic appointments. He has contributed chapters to numerous books and has published many articles in journals of scholarship, including the Journal of Political Economy, Oxford Economic Papers, Journal of Law and Economics, Studies in Banking and Finance, Journal of Monetary Economics, Public Finance Quarterly, Public Choice, Classica et Mediaevalia, Ethics, Slavic Review, Soviet Studies, Rivista de Political Economica, and Zeitschrift fur Wirtschafspolitik. He has entries in the McGraw-Hill Encyclopedia of Economics and the New Palgrave Dictionary of Money and Finance. He has contributed to Commentary, The Public Interest, The National Interest, Harper's, the New York Times, The Washington Post, The Los Angeles Times, Fortune, London Times, The Financial Times, TLS, The Spectator, Il Sole 24 Ore, Le Figaro, Liberation, and the Nihon Keizai Shimbun. He has testified before committees of Congress on 30 occasions.

Dr. Roberts was educated at the Georgia Institute of Technology (B.S.), the University of Virginia (Ph.D.), the University of California at Berkeley and Oxford University where he was a member of Merton College.

He is listed in Who's Who in America, Who's Who in the World, The Dictionary of International Biography, Outstanding People of the Twentieth Century, and 1000 Leaders of World Influence. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: [email protected]


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