The Case of the Abstracted Indian Bonds

Read the introduction to the A Prelude to a Unholy Union roundtable here.

“The investment was made in these particular bonds without consultation with the Indians and without their assent, and the bonds have been stolen.” – Rep. Thomas M. Edwards (R-New Hampshire), July 7, 1862[1]

One night early in the secession winter, for a third and final time, a clerk named Godard Bailey entered his own empty office in the Interior Department building, removed thousands of dollars of negotiable bonds belonging to the Indian trust fund from his safe, and delivered them to War Department contractor William Hepburn Russell. As Russell told Bailey when they first met that July, Secretary of War John Buchanan Floyd had been propping up Russell’s firm with “acceptances”—legally dubious memoranda approving future payments—which Russell used as security on loans. The acceptances now encompassed a sum greater than Russell’s contracts, had no legal justification, and were increasingly likely to “embarrass” both Russell and Floyd. Russell had learned that Bailey was Floyd’s relative by marriage, and Russell played on Bailey’s loyalty to convince the clerk to “loan” him a portion of the bonds in his office for use as security on still more loans to cover his outstanding debts. Bailey carried out the first “abstraction” just hours after Russell proposed it. He made two more trips in September and December, but by now Russell had failed to redeem the first bonds he had “hypothecated” with Wall Street banks. His creditors claimed them and they were lost to the government for good. His discovery now inevitable, Bailey wrote a confession of sorts to outgoing Secretary of the Interior Jacob Thompson: “[I]n justice to yourself, I ought not to permit you to quit office without informing you of the fact that a portion of the bonds constituting the Indian trust fund are no longer in my custody. Those bonds I entrusted, in July last, to third parties, for purposes which it is not necessary to discuss here.”[2]

Bailey’s effort to avoid the discussion were in vain, and when it came to light, the case of the “abstracted Indian bonds” was notorious even in the last days of the Buchanan administration.[3] All parties escaped criminal conviction as the war pushed the affair from the public’s mind, but not before it provoked a congressional investigation and a novel intervention by the federal government in how it invested and managed the funds generated by Indian dispossession—the Indian Trust Fund—as a part of the national debt.[4] During and after the war, in discussions of the bonds, Republican policy makers rhetorically joined tribes and northern taxpayers as common victims of a robbery by disloyal Democrats and, in doing so, bound tribes to their vision of national political economy.

The House of Representatives’ investigation concluded in February 1861 that although the extent of the government’s liability could not yet be determined, the Indian bondholders were entitled to compensation for the violation of “so sacred a trust.” The fund Bailey plundered in 1860 held three million dollars in twenty-four accounts for seventeen tribes, amounting to their compensation for their coerced abandonment of land in several states. Most of the bonds in the fund, like most of the cabinet officials who procured them, were from slave states. Although federal law since 1841 commanded Secretaries of the Interior to buy federal bonds with revenue from Indian land sales, Democratic Secretaries of the Interior continued to buy southern municipal bonds. Eighty-two percent of the value of the bonds in the fund was in bonds from eight slave states. All the stolen bonds were from Missouri, North Carolina, and Tennessee.[5] With Bailey’s theft and southern secession, most tribes now had no hope of repayment. One of the smaller funds, for example, the confederated Wea, Kaskaskia, Piankeshaw, and Peorias’ trust fund (created from the forced sale of the tribe’s Kansas reservation), contained Tennessee bonds bearing six percent interest (“Tennessee 6s”), Florida 7s, Louisiana 6s, Missouri 6s, North Carolina 6s, South Carolina 6s, and Pennsylvania 5s. At some point, Bailey, as clerk, sold the tribe’s New York and Illinois bonds and bought South Carolina state bonds on which, like the other southern bonds, the tribe would never see interest payments.[6] In his first annual report, Commissioner of Indian Affairs William P. Dole concluded that “the weight of this abstraction or defalcation” must fall on the United States, and it was duty-bound to pay tribes the income they would have derived from the interest.[7]

Congress was also prodded to action by the owners of the accounts themselves. In early June 1862, Delawares petitioned Congress to receive United States bonds in lieu of the municipal bonds they had in Bailey’s safe. The Delawares held two funds generated by their forced abandonment of land in Missouri and Kansas, a school fund and a general “permanent fund” which, their treaty required, “shall from time to time be invested by the President of the United States, in safe and profitable stocks.”[8] At a valuation of nearly one million dollars, the resulting Delaware General Fund was the largest single account in the Indian trust fund in 1860. They had received none of their treaty-promised interest payments since the secession crisis began, and now the bonds were gone.[9]

The Delawares’ memorial prompted Congress not only to correct the Delawares’ account, but to re-fund the trust fund generally. In July, the Republican Congress passed legislation to liquidate the bonds from northern states (mainly Pennsylvania) and distribute the proceeds to the tribes. It also paid the outstanding interest on the secessionist states’ bonds and appropriated money to refund the trust accounts to par with the original principal. Congress required the full value of the bonds to be entered on the Treasury’s books to the credit of the tribes, with interest payments paid at five percent semiannually. In effect, the Federal government federalized debt that was primarily owed from the seceded states. House Committee on Indian Affairs chair Thomas Edwards of New Hampshire insisted that “there can be no question, upon any fair interpretation of the existing treaties, as to the responsibility of the Government for the bonds abstracted while in custody.” New York Republican Roscoe Conkling agreed. “The cestui que trust, who has been robbed by his trustee, ought to be reimbursed.” Evading one thorny issue, Edwards focused on the bonds belonging to the Delawares, Iowas, Weas, Peorias, Piankeshaws, and Kaskaskias. The Cherokees and Choctaws held the accounts next largest to the Delawares’, but as to the “now disloyal” slaveholding tribes, “we have made no provision for them in this bill.”[10]

After the war, Republican office holders and the partisan press revived memories of the theft and moved to federalize more of the debt due to tribes. The Republican press framed the pre-war purchases of southern bonds and Bailey’s theft of them as typical of the sordid doings of Democratic “robbers” before the war and even as a part of the larger secession plot. The government was still paying $97,140 annually in lieu of interest on bonds stolen during the Buchanan presidency, the National Republican of Washington told its readers; it was “one of the many legacies left us by that corrupt Democratic administration.”[11] Republican office holders, then, insisted it was the federal government’s obligation to refund the principal and the lost interest of “non-paying” bonds—and not only those stolen from the Interior Department in 1860.[12] In 1871, Secretary of the Interior Columbus Delano drafted a bill (it would pass in 1876) that directed future Secretaries of the Interior to place funds for any tribe in the Treasury, in lieu of reinvesting it, from which they would be paid a minimum interest rate of five percent. This ended a progression of the trust fund from its composition of mostly state securities to US bonds, now the federal Treasury itself holding the debt on its books and issuing the interest payments as proof of its obligation as trustee—although, per the legislation, the Secretary could still invest Indians’ money in federal bonds at his discretion.[13] While Congress deliberately denied the slaveholding tribes of Indian Territory restitution during the war, the Federal government now tied the future of the Indian Territory to the financial future of the United States at the war’s end. The March 3, 1871 Indian Appropriation Act, best known for its rider to the Yankton’s appropriation that ended treaty-making with all tribes, also included a line item to allocate funding for “certain abstracted and non-paying State stocks belonging to various Indian tribes (and held in trust by the Secretary of the Interior).” This appropriation re-funded the Cherokee national and school funds, Chickasaw national and “incompetents” funds, the Choctaw general fund, and the Creek orphans’ fund for a total of seventy-thousand dollars (in addition to continuing funding interest payments to other tribes required by the 1862 legislation.)[14]

The Indian Trust Fund had grown in the antebellum period as an expedient to dispossession that also funded, mainly, the slave state economies that benefitted most dramatically from Indian removal.[15] In light of the bond abstraction, Republicans reconsidered Indians as sellers of land entitled to compensation, victims of fraud, and beneficiaries of a trust relationship with the United States. None of these descriptions were novel, and set beside the violent dispossession that continued in the Gilded Age, they appear as cynical rationalizations of federal power over Indians. But Republicans also used them to advance a new kind of financial management of Indian policy. Trust, a keyword of modern tribal politics, began to take the modern aspects of both a permanent tribal resource and the medium of ongoing negotiations between tribes and the federal government, albeit within a framework built, as Congressman Thomas Edwards described the fund in 1862, “without consultation with the Indians and without their assent.”[16]

[1] “Indian Bonds,” Congressional Globe, 37^th Congress, 2^nd Session (1862), 3156.

[2] “Abstracted Indian Trust Bonds,” House Report 78, 36^th Congress, 2^nd Session, February 12, 1861, pp. 1-20, 28.

[3] New York Times, Feb. 13, 1861; William P. MacKinnon, “Prelude to Armageddon: James Buchanan, Brigham Young, and a President’s Initiation to Bloodshed,” in James Quist and Michael J. Birkner, es., James Buchanan and the Coming of the Civil War (Gainseville: University of Florida Press, 2013); Summers, The Plundering Generation, 239-260.

[4] “Abstracted…Bonds,” 2.

[5] Annual Report of the Commissioner of Indian Affairs (ARCIA) 1860, pp. 236-242; Francis Paul Prucha, The Great Father: The United States Government and the Indians, (2 vols,, Lincoln: University of Nebraska Press, 1984), 416-417.

[6] “Treaty with the Kaskaskia, Peoria, etc.,” May 30, 1854, 10 Stat 1082.

[7] ARCIA 1861, pp. 26-27.

[8] Treaties with the Delawares, September 24, 1829, 7 Stat. 327 & May 6, 1854, 10 Stat., 1048.

[9] “Petition of the Chiefs of the Delaware Indians in Kansas,” Senate Miscellaneous Doc. 100, 37^th Congress, Second Session (1862).

[10] “An Act relating to Trust Funds of several Indian Tribes invested by the Government in certain State Bonds abstracted from the Custody of the late Secretary of the Interior,” 37^th Congress; Session 2, July 12, 1862; “Indian Bonds,” Globe, 3156-3158.

[11] National Republican (Washington, D.C.), March 9, 1876; New York Times, Oct. 30, 1876.

[12] “Letter from the Attorney General, transmitting papers and report upon the condition of the Indian trust funds,” House Executive Doc. 59, 40:2 (1867), 4.

[13] “Act of June 10, 1876,” 19 Stat. 58.

[14] Prucha, The Great Father, 531; “An Act making Appropriations for the current and continent Expenses of the Indian Department, and for fulfilling Treaty Stipulations with various Indian Tribes, for the Year ending June thirty, eighteen hundred and seventy-two, and for other Purposes,” U.S. Statutes at Large, v. 16 (1869-1871), 41^st Congress, 544-571.

[15] Claudio Saunt, “Financing Dispossession: Stocks, Bonds, and the Deportation of Native peoples in the Antebellum United States,” The Journal of American History, 106:2 (2019), 315-316, 317.

[16] “Indian Bonds.”