The Erlanger Cotton Loan
The Erlanger bonds carried a face value of £500 or 12,500 French francs. The actual
value of the bonds fluctuated with the fortunes of the Confederacy -- usually
of the key events which made blockade running a viable business in the latter half of the
war was the so-called Erlanger Loan (or "Cotton Loan"), an issue of bonds made
by Emile Erlanger and Company of Paris. Because Confederate currency was worthless in
Europe, Erlanger cotton bonds became the de facto currency used by the South when
purchasing ships, supplies and other war materiel abroad. In a very real sense, the
Erlanger Loan gave the Confederacy at least a modicum of financial solvency even as its
generals suffered defeat after defeat.
Loan was issued in five European cities -- London, Liverpool, Paris, Amsterdam and
Frankfurt -- on March 19, 1863 and raised £1,759,894 ($8,535,486). The bonds sold at 90%
of face value, and were redeemable for Confederate government-owned cotton in the
Confederacy itself. This last clause was a critical catalyst in stimulating
blockade-running, because the holders of Erlanger bonds had to risk the Federal blockade
to convert them into a tangible commodity.
In the cash-poor South, cotton bonds of one form or another were common currency.
This $1 "cotton pledge," issued by the State of Mississippi, promised future
cash payment to the bearer in exchange for cotton.
the face value of the Erlanger bonds was fixed, the actual cash value of the bonds varied
with the fortunes of the Confederacy itself usually downward. Within two weeks of
the original issue, the cash value of the bonds had sagged to 87% of face value, and
Erlanger and Co. began secretly buying up bonds to sustain the price. Given the
increasingly grim outlook for the Confederacy after mid-1863, however, the value of the
bonds remained surprisingly high, due in part to some very bold campaigning on the part of
Confederate agents in Europe. Remarkably, agents like James Mason encouraged rumors that
the Erlanger bonds would be honored no matter how the war ended. Thomas Dudley, the U.S.
consul at Liverpool who reported on Denbighs conversion
to a blockade runner, was appalled at both the brazenness of the Confederate agents
there and the naivete of local merchants: "as strange as it may seem," Dudley
reported to Secretary of State Seward, "these people here who are aiding the Rebels
and [have] taken or purchased these bonds think if worse comes, and the Union is restored
that the United States Government will assume the payment of their bonds."
Obviously this was not the case. The Union never had any intention
of honoring any Confederate bond or currency, and acted quickly after the war to codify
that policy into law. One of the provisions of the 14th Amendment to the U.S.
Constitution, ratified in 1868, was that "neither the United States nor any State
shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion
against the United States. . . . All such debts, obligations and claims shall be held
illegal and void." But although those left holding cotton bonds at the end of the war
lost their investment, the Erlanger Loan enabled the Confederacy to raise millions of
dollars credit in Europe, money that was used to build warships, purchase munitions
and obtain supplies, all of which were brought into Southern ports by blockade runners
Sources: Steven R. Wise, Lifeline of the Confederacy
and the Macmillan Information
Now Encyclopedia, The Confederacy.