The Jamie Dimon of the Civil War

The story of Jay Cooke & Co.

When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes.

Napoleon Bonaparte, Emperor of France, 1815

We don’t think about this nowadays, but financing wars used to be hard.

In the 1860s, for example, it was far from certain if the federal government could pay for the Civil War.

It didn’t have the power to tax. European investors lacked an appetite for American debt. There was no domestic retail market for government bonds. And although the government could print money, everyone knew that inflation would render that solution temporary.

Things came to a head in the summer of 1861. Soon after war broke out, Congress authorized the sale of $250 million of bonds to expand the army and navy, but buyers could be found for only $150 million worth of the bonds — and only at pecuniary rates.

Enter Jay Cooke…

Cooke was born in Ohio and moved as a teenager to Philadelphia in 1838, where he clerked at the leading banking house of the day, E.W. Clark & Co. He was named partner in 1844 then left in 1858 to start his own firm, Jay Cooke & Co.

Like Robert Morris in the American Revolution and Stephen Girard during the War of 1812, Cooke became the nation’s preeminent financier thanks to conflict — in his case, the Civil War.

Retail distribution of government bonds was Cooke’s secret sauce, honed at E.W. Clark & Co. during the Mexican-American War in the 1840s. Cooke hired thousands of agents who fanned out across the country selling bonds. He also used an early version of what we call today native advertising by placing quasi-editorial content in a wide network of newspapers.

The net result was that, by the end of the war, Cooke’s firm had sold more than $1.3 billion in bonds, or about a third of total Civil War bond sales.

Cooke’s importance to the Union victory, fairly or not, has been compared to that of Ulysses S. Grant.

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Postscript: the failure of Jay Cooke & Co. eight years later precipitated the Panic of 1873, as it had over-concentrated in Northern Pacific Railroad securities then experienced a bank run after railroad stocks began to teeter.