Published by EH.NET (March 2007)

Jay Sexton, Debtor Diplomacy: Finance and American Foreign Relations in the Civil War Era, 1837-1873. Oxford: Oxford University Press, 2005. ix +287 pp. $74 (hardcover), ISBN: 0-19-928103-3.

Reviewed for EH.NET by Marc D. Weidenmier, Department of Economics, Claremont McKenna College.

In Debtor Diplomacy, Jay Sexton of Oxford University examines the role of financiers in American international relations in the mid-nineteenth century. The author’s main thesis is that American international relations were inextricably tied to American and European financiers during the mid-nineteenth century and Civil War period. As a result, American foreign relations during this period cannot be understood without a deep understanding of the actions and motivations of the trans-Atlantic financiers.

The monograph is divided into six chapters. Sexton introduces his basic argument in Chapter 1. This is followed by a discussion of the House of Baring and their important role in American politics and finance in the years leading up to outbreak of the American Civil War. Sexton documents the dramatic rise in American foreign indebtedness to Europe during the antebellum period. He argues that the United States depended on foreign capital to such an extent that it often influenced American political decisions.

Chapters 3 and 4 form the meat and potatoes portion of the monograph. In Chapter 3, Sexton examines Union financial polices and international relations with Europe during the Civil War. The author discusses in great detail how American diplomats worked to achieve two goals during the Civil War: (1) float a large U.S. bond issue on the London market, and (2) block efforts by the Southern Confederacy to achieve recognition from European powers and prevent the South from borrowing funds in Europe to buys guns and military supplies. Although the United States failed to float a loan on the London exchange, the Union sold millions of bonds on the Dutch and German exchanges. In addition, Robert Walker and other American officials in London were quite successful in thwarting Confederate political and financial efforts to achieve recognition from European powers and preventing the South from floating a large loan in international capital markets.

Chapter 4 focuses on Confederate international relations and financial policies in Europe. The author details the difficulties the Confederacy had in selling bonds in Europe and securing recognition from foreign powers. Sexton’s analysis demonstrates that he spent a great deal of time reading and analyzing primary source documents from the period. For example, he provides a detailed discussion and analysis of the British government’s decision to remain neutral during the American Civil War based on a number of letters and documents written at the time. Sexton also argues that the Confederacy would have been much better off during the war if the rebel nation has shipped cotton to Europe in the first two years of the war in exchange for military goods rather than rely on a self-imposed cotton embargo (“King Cotton”) as a carrot to bring European powers into the conflict. Sexton concludes the discussion of Confederate policy by arguing that the South should have centralized its overseas operations and given the central government greater control in buying and shipping supplies from England (as opposed to letting the private sector handle blockade running).

Chapter 5 discusses America’s post-Civil War relations with England. Sexton focuses on the U.S. government’s dispute with England for allowing the Confederacy to build the commerce raider Alabama on British soil. The Alabama wreaked havoc on the U.S. merchant marine fleet and sank nearly seventy Union vessels during the Civil War. England and the United States settled the dispute in 1871 and a court awarded America $15.5 million. Sexton convincingly argues that the Alabama dispute was intimately tied to the United States’ ability to borrow from Europe and refinance its existing debts in the post-bellum period. The author’s well-supported argument shows how politics and economics can reinforce one another in international capital markets. Chapter 6 concludes the monograph with a discussion of the importance of financiers in American international relations during the mid-nineteenth century.

Although the monograph is interesting and well researched, the book has a couple of shortcomings. In several places, Sexton makes the argument that the Union blockade was very important in preventing the Confederacy from obtaining vital military supplies from England. The author overstates the importance of the Union blockade. As shown by Lebergott (1981), Confederate ships were generally successful in running the Union blockade until late 1864 and early 1865 given that steam powered blockade runners generally faced Union clipper ships powered by the wind. The small supply of Confederate merchant vessels (as noted by the author) and the poor financial standing of the Southern government was by far the most important reason for the small number of military supplies ? relative to what the Confederate government desired ? that crossed the Atlantic during the war.

Sexton also argues that the cotton bonds issued by the Southern Confederacy in London to raise funds to fight the war were not an economic success. Instead, the author argues that the South should have issued cotton certificates in Europe with the assistance of William Lindsay, a prominent Englishmen who was also a member of Parliament. While we will never know the outcome of this alternative financing strategy, the argument that the Erlanger Loan was not a success is simply inconsistent with the historical record. Given the Southern Confederacy’s unwillingness to levy and collect taxes, it is simply amazing that the Confederate government was able to issue any bonds in Europe (Lebergott, 1983).

As pointed out by Weidenmier (2005), the cotton bonds were largely issued to settle overdue debts with British gun contractors who had cut off trade credit to the rebel nation. British manufacturers supplied nearly two-thirds of Confederate guns during the war including the standard battle arm of Johnny Reb, the Enfield Rifle. The importance of British guns to the Confederate cause explains why the South continued to make interest payments on the cotton bonds in gold as late as March 1865, despite the onset of domestic hyperinflation and weeks before the surrender of the Confederate capital to Grant’s army. To service the cotton bonds in March 1865, the Confederate government dispatched a ship carrying gold coin to run the Union blockade to England at a time when the probability of running the blockade was less than 20 percent (Lebergott, 1983). Indeed, it seems very unlikely that a government would go to such lengths to service a debt obligation (while defaulting on every other debt obligation) unless it had substantial economic value to the war effort (no guns equals no war). Financial markets understood the importance of the cotton bonds to the rebel cause given that the debt issue traded for 50 pounds sterling (50 percent of par value) in January 1865 ? three months before the fall of Richmond ? while all other Confederate assets were trading for about five percent of their par value at this stage of the war.

Notwithstanding these shortcomings, Sexton has written an interesting historical account of U.S. foreign relations with Europe in the mid-nineteenth century with a focus on the American Civil War. The author has successfully demonstrated the importance of financiers in American international relations with Europe in the Civil War period. This book is likely to be of interest to diplomatic historians and economic historians with an interest in the interplay between politics, economics, and financiers during the American Civil War.


Lebergott, Stanley (1983). “Why the South Lost: Commercial Purpose in the Confederacy, 1861-1865.” Journal of American History, 70:58-74.

Lebergott, Stanley (1981). “Through the Blockade: The Profitability and Extent of Cotton Smuggling, 1861-1865.” Journal of Economic History, 41: 867-88.

Weidenmier, Marc D. (2005). “Gunboats, Reputation, and Sovereign Repayment: Lessons from the Southern Confederacy.” Journal of International Economics, 66: 407-422 (also published as NBER Working Paper #10960).

Marc D. Weidenmier is an Associate Professor of Economics at Claremont McKenna College and the NBER. His recent publications include, “Can Interest-Bearing Money Circulate? A Small Denomination Arkansas Experiment, 1861-1863,” Journal of Money, Credit, and Banking, (co-authored with Richard Burdekin, forthcoming), and “Volatility in an Era of Reduced Uncertainty: Lessons from Pax Britannica.” Journal of Financial Economics, 79: 693-707 (co-authored with William Brown and Richard Burdekin, also published as NBER Working Paper #11319).