A number of years ago, in his book Yankee Leviathan, the political scientist Richard Franklin Bensel insisted that the relationship between the federal government and finance capital that was forged during the Civil War “mortgaged a radical Reconstruction” before the conflict had even ended. It is an arresting argument, and a relevant one. The idea that wars make states—because governments have to create the capacity to wage and pay for them—certainly holds true for the Civil War. The claim that the conflict saw the birth of the modern American state is also now widely accepted. But what kind of state, and what kind of economy, did the war produce? Did it create a state dedicated to emancipation, or to big business?

Roger Lowenstein’s new book, Ways and Means, provides one answer. Offering a highly readable account of how Abraham Lincoln’s government financed the Union’s efforts during the Civil War, it tells the story of two parallel conflicts, one between armies, the other within the economy. Out of each, Lowenstein shows, came a process of political centralization through which the modern American state was created. It is in many ways a fairly conventional account, albeit one well told, particularly in its emphasis on the challenges and unpredictability of the commodity markets during the war. But it is also a strangely optimistic, even boosterish account of finance for a post-2008 history of American capitalism, and one quite removed from the anti-triumphalist turn in recent scholarship on the Civil War and what it accomplished. For Lowenstein, the American fiscal and military state was an instrument of moral purpose, most notably emancipation. Taken on its own, this is a defensible argument. But Lowenstein’s liberal, economistic view of historical change separates forces that might be better understood in terms of political economy, which means that he misses the way big moneyed interests—finance capital—set the terms for free labor and stacked the political deck even at the moment of greatest democratic promise. Whatever the cause, the effect is to leave him unprepared to tackle the era that followed the war, which he covers in an 18-page epilogue that turns unexpectedly dark.

From its outset, the Civil War posed problems of scale for the Union: not just in terms of the number of men to be mustered, the amount of materiel manufactured, and the size of the armies transported, but also in terms of the war’s cost. It was staggering, and as Lowenstein tells us, the “government’s financial system…resembled that of a primitive state.” When Lincoln’s treasury secretary, Salmon P. Chase, took office in March 1861, his department’s coffers were empty; the country had no currency of its own, no ability to borrow in the money that did exist (the notes of private banks), and no taxing mechanism except a tariff on imported goods. As the nation geared up for war, expenses far outran revenue: In Chase’s first three months at the Treasury, the government spent $24 million while collecting about $6 million. Chase sold the last of the bonds authorized by Lincoln’s predecessor, James Buchanan. Then, after the shooting started, he went hat in hand to Wall Street to sell $8 million more in long-term bonds and short-term notes, but the capital markets were not receptive. Far from rising to the challenge, investment bankers navigated the market as they had always done and, regarding the federal government as a poor credit risk, agreed to lend only on short, highly discounted terms. As Chase learned, New York bankers were not to be relied on: As in 1861, they would continue to be fair-weather friends of the Union cause; for them, patriotism was a market value. As the war went into its second, third, and fourth years, the financial pressure was unrelenting. Upon the news of the Emancipation Proclamation, the markets plunged. The Treasury Department careened from crisis to crisis. The cost of the war was unprecedented, and the means devised to meet it amounted to nothing short of a revolution.

There are, Lowenstein tells us, only three ways to finance a war: You can tax; you can borrow; you can print money. In his attempts to do any of these things, Chase faced the same constraints as his Confederate counterpart, Christopher Memminger, although they chose different paths. By a constant process of innovation, Chase managed to leverage all three fiscal strategies, while Memminger resorted to printing money at a frantic pace, sending the Confederacy into an inflationary spiral.

Chase’s strategy required political will and coordination—in particular from Lincoln and Congress—and he did all he could to persuade Lincoln of his cause. In July 1861, Lincoln summoned Congress into special session to raise men and money. With war expenses running at about $1 million a day, he called for at least 400,000 men and $400 million. It was “a frightful sum,” but one required for what, after Bull Run, was clearly going to be a long war. Chase proposed to raise $80 million through taxation while borrowing the rest. At first he worked through existing channels, teaming up with the congressional Ways and Means Committee to authorize $250 million in government debt to be offered through private banks as 20-year bonds and three-year notes. New York bankers were wary of the scale of capital required and the drain on their liquidity. They also feared that the notes would end up like the currency in the Revolutionary War—which is to say, “not worth a continental.” They reluctantly agreed to take $50 million of the debt secured with Treasury notes but insisted on retaining the gold in their vaults as well as charging a hefty interest rate. For the rest of the sum, Chase teamed up with the Philadelphia banker Jay Cooke, who marketed the Treasury notes in small denominations directly to citizens through a network of agents. The relationship between the two became so cozy that Congress eventually investigated. Cooke’s marketing strategy paid dividends throughout the war, offering ordinary folks a stake in their government’s success, a patriotic investment in the nation.

As the pressures mounted, Chase also sought to create new ways to harness the nation’s wealth. To enhance its credit, the government had to grow its revenues, and it did so first by doubling duties on imports—the Morrill Tariff of July 1861—and, far more radically, by creating a source of “internal” revenue. In August 1861, Congress passed the country’s first income tax: a 3 percent tax on incomes above $800. Few households passed that threshold. A year later it formed the Bureau of Internal Revenue, lowered the threshold income, and raised the rate for incomes above $10,000 to 5 percent. To force compliance, the bureau published lists of taxpayers and their incomes in the newspapers. Lobbyists swarmed the capital seeking to weaken the bill. Over the course of the war, the Union raised a sixth of its revenue by taxation, but the importance of taxes went far beyond the money. Like conscription, another harsh necessity the government came to, the imposition of taxes marked an unprecedented exertion of federal authority and “eventually would redefine the average citizen’s interaction with government.” The fiscal war state made for a more centralized nation-state.

Throughout the war, Chase and his Treasury colleagues were enmeshed in a tense relationship with the nation’s bankers. In late 1862, there were 1,400 state-chartered banks in the Union states, about 8,000 different kinds of bills in circulation, no national bank, and no national currency. By that point, the drain on specie (or money in coins) was so severe that New York bankers suspended the redemption of bank notes in specie. Chase needed a currency that was not tied to the gold standard. In his first report to Congress, he ventured a plan to organize a “new system of banks, privately owned but chartered by the federal government,” that would be required to invest in government bonds and to issue a new uniform national currency. But if this plan came full-blown from the head of Zeus, as Lowenstein implies, its legislative history was fraught and stuttering.

The currency part came first, a “revolutionary” Legal Tender Act that came out of the House Ways and Means Committee. It authorized the Treasury to print US notes to pay soldiers, suppliers, and others. The paper—soon known as “greenbacks” from the color of the ink—was not redeemable in specie but was declared money by government fiat (which is to say, it was lawful for the payment of all public and private debts). Nobody liked the idea: It was “a measure of necessity, and not of choice,” and by the time the act was finished, senators had revised it to make the greenbacks redeemable in coin, but only for holders of government securities. As Lowenstein points out, it was an inegalitarian system in which soldiers would get paper and bondholders coin.

Lowenstein treads lightly here, but there can be no mistaking the power of what he calls the “financial class” to dictate terms in the creation of the US banking and currency system. Thaddeus Stevens denounced it as “a cunning scheme.” Lincoln—who was a Western loose-money man—signed it into law on February 25, 1862. With it came an unrelenting wave of inflationary pressure. Chase blamed it on the notes of the private banks, which remained in circulation even after a tax was imposed to eliminate them. The value of greenbacks (and, inversely, gold) rose and fell with the Union’s military fortunes. At the end of the war, $431 million in greenbacks were in circulation, and the return to the gold standard was one of the most divisive issues in American politics for the rest of the century.

The banking leg of the new system took even longer to enact. The National Banking Act was not signed until February 1863 and got off to a slow start. It aimed not at establishing a central bank (which Chase opposed) but rather a public-private arrangement of nationally chartered banks that would be required to invest a portion of their capital in Treasury bonds and would issue the national currency. Bankers were naturally opposed—it was their banks and notes that Chase aimed to phase out—and fought the bill. Despite their efforts, it passed, but a year later there were only 100 or so national banks in existence, which issued a total of $4 million in bank notes—“a laughable sum,” as Lowenstein notes, “for a supposedly national currency.”

Chase found himself locked in a bitter struggle with New York bankers protecting their position as the primary funnel for the country’s capital. After the Associated Banks (a New York City group) sought to block the acceptance of national bank notes, Chase pulled out the big guns, threatening to deposit federal funds only in the new banks. He also invited Cooke to open one in New York. The banking titans didn’t exactly fall into line after this, but they did deal, extracting significant concessions for their support, including lower reserve requirements (which meant bank capital would still flow into their vaults). They were also allowed to keep their names, some of which are still familiar today, including Moses Taylor’s City Bank and JP Morgan Chase, the latter in honor of the secretary himself. There would continue to be private banks issuing private notes for years after the war, but the conflict produced a new national banking system “anchored firmly on Wall Street,” Lowenstein writes. New York banks finished the war stronger than when they had started it, “poised to dominate finance during the Gilded Age.”

As the necessities of war led to the centralization of power and authority in the federal government, the architecture of the public-private partnership—of government and big capital—became the heart of the modern American economy and state. There were winners and losers, as Lowenstein acknowledges fleetingly. He notes the “disequilibria between the financial class and everyone else” created by the Legal Tender Act and the “one sizable caveat” to the Union’s booming economy: that “many workers didn’t share in it.” He also notes the cronyism of the Pacific Railroad Act, with its giveaways of land and shares; the deference of the Treasury Department to cotton speculators on confiscated land on the Sea Islands and in the Mississippi Valley; and the way the ever-heavier tariff proved to be a “Republican gift to business,” especially industry. There is even one mention of the dispossession of Native people on which the Homestead Act was premised.

In all of this, Lowenstein mildly acknowledges the sway of capital over the government and its wartime giveaways but declines to go any further. The word “class” is never used (except in reference to the “financial class”), and “capitalism” barely appears (though “capital” is often discussed). Instead, Lowenstein talks in terms of the entrenched “political geographies” of East and West and of “racial and economic fissures.”

The focus of Lowenstein’s book is finance, but fiscal policies are inseparable from the larger political economy from which wealth is drawn, and he has little to say about that, including the incredible growth of industry and agribusiness through government contracts and the partnerships with government that developed in those sectors during the war, with such profound effects for the nation afterward. Likewise, he leaves out the social forces and class conflicts that the war policies unleashed. The Civil War era was one in which a series of ascendant working classes were beginning to define themselves, including a large population of emancipated Black people, Western grain farmers, and Northeastern and Midwestern industrial workers, all seeking to protect their interests.

The limits of Lowenstein’s economistic approach are most evident in his treatment of the Confederacy, which he addresses periodically as a foil to the Union’s story. In his retelling of its formation, Lowenstein offers a straightforward if unfashionable account: Secession, he argues, was a conflict between two societies, one forward-looking and progressive, the other economically and socially backward. The argument that the slave South was the leading edge of American capitalism, made most forcefully by Walter Johnson, Edward Baptist, and Calvin Schermerhorn, is subjected to withering criticism by Lowenstein. As he argues, “present-day capitalism is the antithetical inverse of the southern system,” a position he supports with a few undeniable but recently overlooked facts. Slaveholders, he tells us, had no liquid capital, crippling industrial deficits, and assets that were “practically immobile.” In contrast to that of the Union, the Confederacy’s fiscal state was a disaster—a disaster that began with its decision to embargo cotton, its only valuable asset, and ended with the government printing money on wallpaper. As an economy, the Confederacy was all guns and no butter, which meant it basically devoured its own substance. The result was hyperinflation and, by 1863, famine. All of this is true.

Lowenstein attributes this dire state of affairs to the poor decision-making of the Confederate leadership and its rigid commitment to states’ rights and what he calls (not “slavery” but) “white supremacy.” But his grasp of the Confederacy’s political economy is too limited to identify the real source of its financial straits. He acknowledges that the Confederacy’s tax in kind was “far more intrusive than anything southerners had endured” from the federal government yet sticks to an erroneous generalization about the big, centrist Union state and the small Confederate one. As I explained some years ago, the Confederacy faced a particular set of structural problems as a slave regime at war, which forced it to adopt a series of harsh conscription, exemption, tax, and impressment policies to command resources from the center. You can only exploit the economy you have, and the Confederacy had to make war with one based on chattel slavery. The irony, which Lowenstein misses, is that the Confederacy was a more centralized state because it was less modern.

The one fascinating part of Lowenstein’s story is his account of the Erlanger loan. This was a bond issue for $15 million that the Confederate government floated in Europe in 1863 to leverage the value of cotton marooned behind the Union blockade. Lowenstein calls it a “moonshot.” It was handled by a French banker, Frédéric Émile d’Erlanger, who had ties to John Slidell, the Confederate minister to France. The bonds were 20-year instruments payable at 7 percent interest in sterling or at any time in cotton at the prewar price, a return that would quadruple the investment. They were a huge success: Investors flocked to them even though they had no way to get the cotton—Richmond had no obligation to deliver it, so in order to collect, investors either had to run the Union blockade or wait until the Confederacy won. At times, the bonds held their value better than the Union ones, and they continued to sell even after the Confederacy fell. Lowenstein takes this as a moral lesson about how investors lose their heads when presented with the potential for vast profits. But it was also likely a hangover effect of the antebellum cotton fever that had, for a brief time, made the slave South a magnet for global capital.

In the last few pages of Ways and Means, Lowenstein turns to the consequences of the revolution in finance and government that the Civil War delivered. And here the story turns dark: In quick succession, he lists the postwar policy decisions on protective tariffs, hard money, and the elimination of the income tax that show how the party of emancipation became the party of big business. Most of the how, when, and why, however, are left unaddressed, and the analysis Lowenstein does offer is suspect. Far from the counterrevolution of property that W.E.B. Du Bois described in Black Reconstruction, Lowenstein instead embraces an argument about the harsh peace that the Republican victors imposed on the conquered South, seemingly unaware of the tainted origin of this account of the “failure” of Reconstruction. Telescoping decades of history, Lowenstein lays out the bleak postwar landscape. He begins by noting, accurately enough, that the Republicans would soon abandon their progressive stance on Black people’s rights. The party of emancipation believed in opportunity, not confiscation, so Sea Island “Negroes” and other “Blacks” (Lowenstein’s language) were not sustained in their claims on land. Meanwhile, the rest of the South was abandoned and sank further into poverty. But Lowenstein’s description of how all this happened swerves dangerously close to the Dunning school view of a victimized white South. “The federals never tested the South’s potential for reform by offering generous economic support,” he says. The region received only a trickle of federal spending, and the generous pension policy it enacted “excluded Confederate soldiers.” In his view, this was not only a “missed opportunity” but a “Marshall plan for the winners.” It never seems to occur to him that the defeated Confederates had been offered a gentle peace by President Andrew Johnson and had rejected the offer, or that they would battle to preserve their political and racial power—even at the cost of economic development—after the war as they had done before it.

Ways and Means offers a reliable account of the revolution in public and private finance that the Civil War unleashed, but an impoverished analysis of the world it created—one which, as Lowenstein observes, we still live in. Moving directly from the 1860s and ’70s to the 1960s at the end of the book, he makes no mention of the ensuing century of historic struggle over the terms of capitalism and democracy in the United States. Only after “the Civil Rights movement in the 1960s,” he writes, “did a more…modern, and prosperous southern economy emerge” and “begin to catch up with the history it had missed.” Which I guess is one way of putting it, if for you that “history” is composed only of Whiggish development and the capture of the economy by finance capital. N