Jay Cooke - Financier of The Civil War

Financier of The Civil War

On January 1, 1861, just months before the start of the American Civil War, Cooke opened the private banking house of Jay Cooke & Company in Philadelphia. Soon after the war began, the state of Pennsylvania borrowed $3,000,000 to fund its war efforts.

In the early months of the war, Cooke worked with Treasury Secretary Salmon P. Chase to secure loans from the leading bankers in the Northern cities. (Cooke and his brother, a newspaper editor, had helped Chase get his job by lobbying for him, even though all were former Democrats.)

Cooke's own firm was so successful in distributing Treasury notes that Chase engaged him as special agent to sell the $500 million in "five-twenty" bonds — callable in five years and matured in 20 years — authorized by Congress on February 25, 1862. The Treasury had previously tried and failed to sell these bonds. Promised a sales commission of 0.5 percent of the revenue from the first $10 million, and 0.375 percent of subsequent bonds, Cooke financed a nationwide sales campaign, appointing about 2,500 sub-agents who traveled through every northern and western state and territory, as well as the Southern states as they came under control of the Union Army. Meanwhile, Cooke secured the support of most Northern newspapers, purchasing ads through advertising agencies, and often working directly with editors on lengthy articles about the virtues of buying government bonds. These efforts heralded a particular type of patriotism based on classical liberalist notions of self-interest. His editorials, articles, handbills, circulars, and signs most often appealed to Americans' desire to turn a profit, while simultaneously aiding the war effort.

Cooke quickly sold the $500 million in bonds, and $11 million more. Congress immediately sanctioned the excess.

Cooke influenced the establishment of national banks, and organized a national bank at Washington and another at Philadelphia almost as quickly as Congress could authorize the institutions.

In the early months of 1865, the government faced pressing financial needs. After the national banks saw disappointing sales of "seven-thirty" notes, the government again turned to Cooke. He sent agents into remote villages and hamlets, and even into isolated mining camps in the west, and persuaded rural newspapers to praise the loan. Between February and July 1865, he disposed of three series of the notes, reaching a total of $830,000,000. This allowed the Union soldiers to be supplied and paid during the final months of the war.

It was in this effort that he pioneered the use of price stabilization. This practice, whereby bankers stabilize the price of a new issue, is still in use by investment bankers in IPOs and other security issuances.

Although Cooke's bond campaigns were widely praised as a patriotic contribution to the Union cause, his huge personal financial gains did not go unnoticed. Notorious for stalling the deposit of bond proceeds into federal coffers, he was accused of corruption, and on December 22, 1862, Representative Charles A. Train proposed a Congressional investigation of the Treasury—though the investigation was never realized.