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§ 1,: 1837. The Suspension of Specie Payments. The United States Bank of Pennsylvania in the Crisis. Its Cotton Operations. The Federal Treasury in the Crisis. - William Graham Sumner, A History of Banking in all the Leading Nations, vol. 1 (U.S.A.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 1: A History of Banking in the United States.
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1837. The Suspension of Specie Payments. The United States Bank of Pennsylvania in the Crisis. Its Cotton Operations. The Federal Treasury in the Crisis.
THE inflation in England reached a crisis in the course of 1836. In October, there was a run on most of the Irish banks, which proved fatal a month later to the Agricultural Bank, a great joint-stock association established about two years before, and having about thirty branches. The Northern and Central Bank of Manchester was compelled to apply to the Bank of England for assistance. It was only about two years old and had forty branches. The Bank of England, fearing that a catastrophe to this bank might occasion a panic in Lancashire, made large advances to it.* In the advances that were made to the discount houses to rediscount commercial paper, a great mass of bills was uncovered which had been produced by bill-kiting between six houses in London and one in Liverpool, whereby some £15 millions or £16 millions sterling had been advanced to Americans by banks whose total means were not one-sixth of that amount. The paper of some of these banks was rejected by the agency of the Bank of England at Liverpool, and three of them failed in March, 1837. On account, however, of the ramifications of their transactions, the Bank of England was obliged to carry them until their affairs could be liquidated. Their names were Wilson, Wildes, and Wiggins, and they became famous as the three W’s. These banks gave open credits to persons who went out to all parts of the globe to buy products. The agent of the bank drew a bill, the proceeds of which were to be invested in coffee, sugar, and other commodities, which were to be shipped to Europe subject to the order of the banking house for reimbursement. Many of these cargoes, instead of being sent to Europe, were sent to the United States, and for various reasons the returns upon them were delayed or were lost. The amount of credits which these houses had extended in the United States was estimated, toward the end of 1836, at £20 millions; but they had been reduced during the winter to the sum above named, or, as other authorities stated, to about £12 millions. At the same time the best authorities estimated the amount of American stocks held in England at about £20 millions sterling. There was, therefore, in March quite a well-defined commercial crisis in London. The policy of the Bank of England in sustaining the three W’s was much disputed, but the “Edinburgh Review” said that if the bank had refused to take their paper, “bills to the amount of from £8 millions to £12 millions would have instantly ceased to be negotiable, and it is all but certain that the shock which such an event would have given to credit would have produced an extent of bankruptcy and ruin to be paralleled only by what followed the breaking up of the Mississippi scheme in France.”
In New York, in January, several of the banks refused to receive on deposit checks on other banks. In the same month the Board of Trade of New York memorialized Congress in regard to the deranged state of the currency and exchanges, and asked their interposition to remedy it. They urged that another national bank should be chartered, particularly for the reason that it could regulate the local banks. “In short, such an establishment has existed and is familiar to the habits of the country, and your memorialists desire nothing better than to return to that system under which the commerce and currency of our country so long prospered.” It was very generally agreed on all sides that the currency was excessive and in great disorder.
After the 1st of January, the price of cotton fell four or five cents a pound in England, and during many months of the year, 1837, the price ranged four cents lower than in 1836. This was a fall of 30 per cent. or 40 per cent., and its effect upon the persons who had taken up cotton lands on credit, expecting a maintenance of the old price, was disastrous. It was not strange, therefore, that the first failures occurred at New Orleans. They happened on the 4th of March, so that Gen. Jackson left to his successor the task of reaping all the harvest which he had sown by his experiments of the last eight years. The first failure was that of Hermann, Briggs & Co., cotton factors, who had made advances to the cotton planters which the crop would not repay. Their correspondents, J. L. and S. Josephs & Co., of New York, failed as soon as the news reached New York. Six months later, however, their estate was said to show surplus assets for more than half a million of dollars.*
It will therefore be seen that this revulsion came upon the commercial centers of this country from two sides at once. The expansion in England had reached its limit and there was a reaction with a decline in demand for cotton. With the fall in the price of cotton, the whole cotton producing region was prostrated and could not pay for the supplies it had drawn from the Northeast. At the same time the credit which had been enjoyed in England by northern merchants and bankers was lost and payment was demanded. This overthrew the “credit system” here, and everything which depended on it. The latter revulsion fell upon the commercial and financial centers directly. Some writers on the events laid stress upon one of these sets of circumstances; others on the other.*
During the month of March the failures followed rapidly. On the 28th a committee of New York bankers turned to Biddle for help. He went to New York, where an agreement was made that the New York banks should increase their discounts $1.5 millions; that the Bank of the United States should issue bonds payable in London for $5 millions and send specie to the amount of $1 million; the Manhattan Company was to issue bonds, half payable here and half in London, for $2 millions; the Bank of America was to draw on Rothschild for $200,000 and the Girard Bank to issue bonds payable in London for $500,000 and the Morris canal for $1 million.† These bonds were sold for the bills receivable of the merchants at 112 and a half, and were sold by the merchants for current paper at 109, specie being at seven per cent. premium. Exchange was at 111 and a quarter or 112. The shares of the Bank were at 119 or 120. The bonds were made payable at the Barings. Biddle made the reservation that he must submit the exportation of specie to his Board of Directors.
Issuing bonds under such circumstances is a transaction which may have very different phases and significance. It may be that a great and strong institution puts its credit in the place of that of a solvent debtor who can give proper security to the Bank near at hand which he could not give to his creditor at a distance. Under other circumstances a weak and rotten bank issues post-notes to insolvent debtors, pretendedly for their relief, but it is really making use of their distress to borrow from them, or to borrow elsewhere on their security, thus driving them down to lower depths of bankruptcy. In the case now before us the Bank of the United States was supposed to be acting on the former principle. This was only partly true, and in the next two years that Bank gradually went over to the second use of post-notes. The great banks of the Southwest fully illustrated the second use of these instruments.
The Bank held a great amount of securities which were not immediately available and others which had fallen in value. It did not want to sell them. Hence, while borrowing by its post-notes, it was speculating in these securities. Although its margin on the bills receivable which it had taken from the merchants was wide, yet it really took a risk on the liquidation of the debt owed by Americans in England. When it began to buy cotton it engaged in a gigantic speculation in that staple, embracing the whole crop. These hazards all went against it more or less, and all became more and more complicated.
In April the bonds of the Bank of the United States were selling at one per cent. per month discount, and those of the Manhattan Bank at one and a-half per cent. The New York banks would not discount southern and western paper. It was estimated that the southerners did not pay over five cents on the dollar of what they owed. From the failure of Josephs to April 8th, there were ninety-eight failures at New York, with liabilities of $60.5 millions. At a meeting of the bankers it was proposed to petition the Legislature for permission to suspend, but the proposition met with no favor.*
The whole cotton region, however, seemed to be prostrated. A correspondent wrote from Charleston: “The credit system, the sure foundation of our prosperity, is abandoned. Four, five, six, and even ten per cent. a month has been paid by those requiring funds to sustain their credit.”† The failure of the bank of Yeatman, Woods & Co., of Nashville, was a great calamity to that region. “Their house occupied a very high ground in the confidence of millions of people. The result will be ruinous in Tennessee and Kentucky to the poor. Their notes make up almost one-third of the circulation in Tennessee.”‡
At New Orleans all but four or five of the principal cotton factors had failed. The planters depended on them for the advances by which they made their improvements and bought their supplies in anticipation of the crop. A correspondent, in April, said: “It can no longer be concealed that the commercial community of New Orleans is altogether in a complete state of bankruptcy or suspension. * * * One-fourth of our bank directors have become insolvent or suspended payment, there being now but four or five large commission establishments left as the pillars of the once prosperous commerce of this city. * * * Including the responsibilities of the cotton planters, the amount may be $100 millions; but taking into consideration the amount due on land or real estate speculation, the actual indebtedness of New Orleans may be estimated at $180 millions.”§ A New Orleans newspaper declared that “the monopoly of the cotton staple has fallen by its own weight. There will not be a house left to tell the tale.” It expressed the oft-repeated but as yet never-fulfilled hope that the rising generation would profit by the lesson.∥ At the same time a Mobile newspaper said: “There is a little trade to be seen going on here and there, but it is mournful even to look upon that, as it leads to comparison. Where nine-tenths of the merchants of a city, which until recently flourished and prospered beyond all others of its population, have suspended payment, it is enough to despond the stoutest heart.”
At a meeting in that city, April 22d, a review of the situation was presented in which occurred the following passage: “The fact of the indebtedness of the State having been adverted to, the question naturally suggests itself, How does this arise? The answer is plain and obvious. Such has been the productiveness of the State for several years past, and so large the returns of slave labor, that the purchases of that species of property from other States, since 1818, have, it is believed, not fallen short of $10 millions annually, while the average value of our exports has probably not exceeded $16 millions; thus leaving an amount for other expenditures entirely inadequate to meet them, and this will be the more evident when it is considered how large an amount has been expended, both in the interior and in this city, in making improvements.”*
The North and East had made great profits by selling goods to these cotton planters on long credit. When the revulsion came they were creditors for large advances made in the confidence of the continued prosperity of the planters. All sections therefore had a great stake in the market for cotton.
After the movement of revulsion began, the notes issued by the southwestern banks on discounts were remitted north and east by way of payment.† The accumulation of them there becomes a feature of the situation which we meet with in its consequences again and again.
In the New York Legislature it was proposed, in April, that the State should lend to the banks $3.5 millions five per cent. bonds, the issue of which had been authorized to pay for canals. The banks were to sell them in England and pay the State in such installments as were required for the canal expenditures. This plan was not actually carried out, although it was adopted, because some further legislation was necessary and the banks suspended before it could be obtained.‡
At a public meeting at New York, April 25th, resolutions were adopted declaring that the trouble was due to presidential meddling with business and currency; to the destruction of the national bank; to the attempt to substitute a metallic currency; and to the specie circular. A committee of fifty was appointed to go to Washington and ask the President to withdraw the specie circular. Biddle, being in Washington at this time, called upon the President in order to give him a chance to talk about the financial situation; but Van Buren did not seize the opportunity.§
Early in May three Buffalo banks were enjoined by the Bank Commissioners, and the Comptroller gave notice that the State would redeem their notes. Buffalo had suffered very much the year before by the failure of Rathbone, who had $1.5 millions forged paper out. May 3d, the loco focos held another of the meetings which they were in the habit of holding in the park at New York City, at which they adopted an “Address of the Producing Classes of the City of New York, friendly to the Policy of substituting a Specie Currency for a Promise Currency, to the People of the United States.” This meeting encouraged the run on the banks, which increased during the early days of May.
On the 8th, a meeting was held to hear the report of the committee which had been sent to Washington. They had read to the President an elaborate statement of the calamities of the last three months, and had stated to him their opinion that it was all due to the removal of the deposits and the specie circular. They had asked him to call an extra session of Congress; to suspend the specie circular; and to defer suits on duty bonds. He replied that he would inquire into the possibility of deferring the suits; that he would not suspend the specie circular; and that he could not call Congress together because many of the Representatives were not elected. The meeting, upon hearing this report, passed resolutions reiterating their view of the political mistakes of the last administration, which had caused the trouble. Some months later the delegates to the Bank Convention summed up more justly the causes of suspension, leaving out the chief alleged political causes: “The simultaneous withdrawing of the large public deposits, and of excessive foreign credits, combined with the great and unexpected fall in the price of the principle articles of our exports, with an import of corn and breadstuffs such as had never before occurred, and with the consequent inability of the country, particularly of the southwestern States, to make the usual and expected remittances, did, at one and the same time, fall principally and necessarily on the greatest commercial emporium of the Union.”*
On the 8th of May the Dry Dock Bank failed. On the 10th, the New York City banks all suspended. There were fears of an outbreak, especially on account of the inflammatory harangues by which the people had been excited at the loco foco meetings. These harangues had consisted of denunciations of the banks, which were only too well deserved, and of complaints about the bank note currency, which were very just; but they had run on also into anarchistic doctrines about property and vested rights. Another subject of their complaint, which was by no means without foundation, was the failure in the administration of justice against financial crimes, and the weakness of the law and the courts in all attempts to compel the banks to deal honestly and justly with the public. The militia were under arms on the day that the suspension took place.†
It spite of all that had happened during the preceding three years, it is stated on the best authority that the suspension of the banks had not been anticipated.‡ Under the safety fund act, any bank which refused to redeem its notes on demand was to be enjoined by the Chancellor, put in the hands of a receiver, and forfeit its charter. The Legislature hastened to suspend this law for a year. It was also proposed to suspend the law of 1835, which prohibited notes under five dollars. This was not passed, and it is said that this is the reason why the democrats were defeated at the next State election.* There were at this time ninety safety fund banks, with a capital of $32.2 millions, and nine chartered banks not in the safety fund, with a capital of $5.1 millions. Gallatin says that the suspension law was unnecessary and useless; that it gave the banks no new liberty, and was not wanted by them.
The Philadelphia banks suspended as soon as they heard that the New York banks had done so. They declared that they had plenty of specie for Philadelphia, but not enough for the “Atlantic seaboard.” They said that, as the balances stood, all their specie would have been drawn away. They agreed to pay each other interest on daily balances, and to limit the amount which one might owe another, under penalty of handing over to the creditor the choice of the bills receivable of the debtor.† As fast as the news spread the banks with very few exceptions suspended, from one end of the country to the other. The Governors were generally called on to summon extra sessions of the Legislatures. In some cases they did so and in others they refused. Governor Ritner of Pennsylvania published a proclamation stating that he would not call a session of the Legislature, because all the measures which it was proposed to adopt would be mischievous; namely, to issue small notes, which would increase the circulation instead of diminishing it; to prevent the forfeiture of the charters, which would relieve the banks of the necessity to resume, and would set them free to enter upon inflation; to enact a stay law, which would destroy all respect for law.
The banks of Natchez and Montgomery suspended some days before those of New York, and those of Mobile and New Orleans at about the same time, but without knowledge of what had taken place in the North. There was just at this time an extra session of the Legislature of Mississippi, which was diligently at work manufacturing bank charters.‡ It authorized the suspension, and authorized the banks to issue post-notes for a year. The Union Bank of Florida published a statement in the newspapers, May 10, 1837, before the suspension at the North was known, which showed that it possessed but $76 in foreign bank notes with which to pay deposits $108,694 and circulation $254,941. It never resumed afterwards.§
If the utterances of bank conventions, bank commissioners, legislative committees, etc., in the different States are read side by side, they are found to contain almost identical expressions to the effect that the public of “our” State is to be congratulated on the soundness of the banks in it, while the general suffering is attributed to the folly and errors of neighbors; that our banks have plenty of specie for themselves, but that they cannot be expected to provide all their neighbors with specie; that it is impossible for any to maintain specie payments unless all do.
May 20, Niles said: “There are still a few banks that continue to pay specie for their notes, but specie is nearly banished as a circulating medium, and its place is filled by those abominations called shinplasters, which are becoming as plentiful, and will prove as troublesome as the frogs of Egypt.”* This anticipation was only too completely fulfilled in the next three years, but the issuers of Shinplasters were rather individuals, firms, and municipal corporations, than banks.
Immediately after this suspension, Biddle published another letter to Adams to explain why the Bank of the United States had acted with the others. He said that the other banks were forced to suspend because the deposit banks had done so. The United States Bank could have gone on, but comity to the other Pennsylvania banks dictated that the people of Pennsylvania should not be compelled to pay in different money from that used in the other States.
This letter was another of Biddle’s meretricious literary productions. It is certain that suspension was no more welcome to anybody than it was to the Bank of the United States, and it was extremely satisfactory to be able to make it under the cover of a necessity alleged to arise from the action of the banks of New York. In Philadelphia the general opinion was voiced by the “United State Gazette,” which said, May 12th: “A large portion of the benefit of the measure would have been lost if any bank had declined to join with the rest. Great credit is due to the United States Bank for her accord, to which step Mr. Biddle has surrendered his reluctant consent in obedience to the obvious interests of the community, without impairing in the general opinion the stability or fame of his institution.” To the contrary of this we must believe that Biddle now lost the grandest chance which he and the Bank ever had. “If,” wrote Gouge in 1838, “he had maintained specie payments for only one month after the other banks suspended, the government would, under the existing law, have been compelled to employ his Bank as its sole financial agent; and thus his triumph over the government, which is the wish dearest to his heart, would have been complete.”† It was admitted on all sides that the “experiment” of using the local banks had failed, and there was a very strong revulsion of feeling in favor of the national bank. If the Bank of the United States had really been strong and sound, and had proved it by going on when the others suspended, it is as probable as any such historical speculation ever can be that it would have been reinstated in its former position.
General Hamilton of South Carolina, who was president of the bank which had bought the branch of the United States Bank at Charleston, in his turn addressed a letter to Biddle, proposing a bank convention to be held at Philadelphia in August, to bring about resumption. He declared that the speculation had its causes outside of all the controversies between the Bank and Jackson. He thought that the Pennsylvania charter for a $35 million bank was unwise, and only a sign of the infatuation for banks, and proposed that an amendment to the Constitution should be sought to incorporate a national bank.
Adams did not reply to Biddle, but he also wrote a public letter in July: “We are now told,” said he, “that all the banks in the United States have suspended specie payments; and what is the suspension of specie payments but setting the laws of property at defiance? If the president and directors of a bank have issued a million of bills, promising to pay five dollars to the holder of each and every one of them, the suspension of specie payments is by one act the breach of a million of promises. What is this but fraud upon every holder of their bills, and what difference is there between the president and directors of such a bank and the skillful artist who engraves a bank bill, a fac-simile of the bill signed by the president and directors, and saves them the trouble of signing it by doing it for them? The only difference that I can see in the two operations is that the artist gives evidence of superior skill and superior modesty. It requires more talent to sign another man’s name than one’s own, and the counterfeiter does at least his work in the dark, while the suspenders of specie payments brazen it in the face of day and laugh at the victims and dupes who have put faith in their promises.”
Public meetings were held from one end of the country to the other about the suspension of specie payments, at which resolutions were adopted embodying every conceivable view of the case, its causes and its remedies. A meeting of loco focos at Philadelphia declared that all the banks were in league with Britain and European monarchies to plunder free America by draining off the gold. They appointed a committee to ask the banks to pay their five and ten dollar notes. The banks replied that on a specie currency only those could do business who had gold and silver. The banks supply by their credit a deficiency which otherwise would exist in the circulation. This was another repetition of the notion that “there would not be money enough to do the business if it were not for the bank issues.” At the meeting at Baltimore the resolutions denounced the British party and the United States Bank for “preconcerted suspension;” they declared banking a fraud, and denounced the issue of small notes by corporations.
In May a Constitutional Convention was held in Pennsylvania, one of the chief causes for calling which had been the hope of introducing into the Constitution limitations on banking and paper money. A large party also hoped by this means to destroy the United States Bank. The attempt failed, but an article was put into the new Constitution requiring six months public notice of an intended application for the enactment or extension of a bank charter; no charter to run more than twenty years; every charter to reserve to the Legislature the right to amend or annul it, if injurious to citizens, though without injustice to corporators; no one law to create or extend the charter of more than one corporation.
On the 4th of July, an Anti-bank Convention was held at Harrisburgh, which endeavored to make the hostility to the banks a political force, and to organize it for the purpose of a “reform of banking.” In all these complaints and denunciations of banking the positive desire which is expressed is that the banks shall serve equality by their operations. A loco foco meeting at New York resolved that the banks ought to help poor men to emigrate and that Congress ought to give each one from eighty to two hundred acres.
In August, Biddle still hoped and believed that the Executive Department would find it necessary to return to the Bank of the United States.* In September Adams mentioned that he bought of the Bank in Philadelphia, with its own note, a draft on Washington. The draft was payable in current funds, which were depreciated eight per cent. or twelve per cent. He made no remark because he wanted to be unbiased about the Bank.
The method in which, at this time, the Bank operated the foreign exchange transactions of the country was as follows: “The cotton crop of the South beginning to come into market at New Orleans, Mobile, and other cities, in the month of October, and continuing to come until the following summer, a large share of the operations of the Bank of the United States, through its branches at those places, has been to purchase the bills of exchange drawn on Europe or the northern cities by the merchants who have shipped cotton. By the purchase of these bills, payable in the notes of the Bank, the merchants of the South have been enabled to pay the planters of Louisiana, Mississippi, Alabama, Tennessee, and other States, for their cotton; who in turn have been enabled to pay their debts to the country merchants; and these last again to the merchants in New York and Philadelphia. In performing this particular function, the notes of the Bank have in reality been nothing but duplicate bills of exchange, absolutely representing a certain quantity of cotton, taking the place of the original bills which the shippers of the cotton had drawn, and possessing this advantage over the latter, that, being universal credit and negotiable without endorsement, they could be applied to the payment of every debt, great or small. They were therefore preferred to any other form of bills to which a sale of cotton could give rise; and if they did not get back to the Bank in Philadelphia as soon as the bills for the purchase of which they were issued, it was because they had to traverse a more circuitous route.”†
Biddle was fully familiar with these operations. He had been practising them for ten or twelve years. It was with his mind on them that he made his contracts for the relief of New York. It was one of the dearest triumphs of his life to “save” New York, and he got, at the same time, a complete cover of magnanimity and glory for the things which he was most anxious to do, and which, if done upon his own motion, would not have looked well. In issuing his post-notes for the assistance of the New Yorkers, he found himself placed in far more complete control of the whole movement of commerce and banking in the United States, and the relations of the same with foreign countries, than he ever had been before; and if his Bank had been sound instead of being rotten, the plans which he made might have been crowned with complete success. The sale of securities in Europe and the constantly extended credits there had, as we have seen, produced an entirely artificial state of things here, inside of which the inflation had been pushed to extravagant limits. The failure of the credit abroad meant a turn in the exchanges, an export of specie, contraction by the banks, a fall in prices, a collapse of the improvement enterprises in the States, and a general bankruptcy. Biddle’s doctrine was that there must be an extension of credit until crops could be produced and marketed in order to reduce the debt. He said nothing of the frugality in expenditure, which must attend upon this as an essential factor. Indeed his position and that of his Bank made him necessarily an inflationist; and this, as we shall see, was why his plan failed. For the first step, however, he proposed to get the extension by substituting for the credit of individuals, which had broken down, the credit of his Bank, which was the best credit then in the market. Then his plan was to get control of the crops, which in fact meant cotton, on behalf of the Bank, and with the proceeds cancel his bonds.
In 1841, Biddle gave as the reason for buying cotton on account of the Bank, that it was not safe to buy private bills, in the summer of 1837, on account of their poor credit. It seems, however, that the Bank had already a large amount of southwestern bank notes in its possession, at that time, as it certainly had later, and that it was desired to use them. In this period, as in 1818, there was an immense speculation in uncurrent notes. The different artifices and methods by which they were employed constituted an art by itself. Such a speculation was combined with the operations of the Bank in cotton. In the absence of opportunities to study these tricks and devices thoroughly, there remains an element of mystery for us in some of them.
The purchases of cotton for account of the Bank began in July on the last of the crop of 1836-7.* In one of the cases at law which arose in 1842 a brother of Jaudon was put on the stand. He testified that Biddle and Jaudon entered into a partnership and furnished the witness with funds of the Bank to carry on the business as their agent. At different times he obtained $2 millions from the bank. He was allowed two per cent. commission, which was added to the cost of the merchandise. The goods were then shipped to Europe and sold. His commission on purchases amounted to $40,000, besides which he received a “bonification commission” on the sales, amounting to $20,000 more. The money was obtained from the Bank by credits passed to the witness’s account on tickets or orders signed by Cowperthwaite, cashier. The profits amounted to $50,000, which was divided between Biddle and Jaudon. The business was conducted through the Committee on Foreign Exchanges and apparently with their knowledge and consent. Two of the members of that Committee testified that they had been wholly ignorant of the nature of the transaction and would not have permitted it if they had known about it.*
The Investigating Committee of 1841 could not ascertain what had been the profit or loss of the first transactions because the papers had been withdrawn from the Bank. They said that accounts appearing on the books of the Bank as “Advances on Merchandise” were in fact payments for cotton, tobacco, and other produce, bought by Mr. Nicholas Biddle, and shipped by himself and others to Europe.
During the summer the great banks in the Gulf States began the same operation. This policy was extremely popular in the cotton region. The Vicksburg “Sentinel” said, in November, 1837, of the Brandon Bank: “It will be seen at a glance that the master stroke of policy pursued by this bank last summer, while it rallied around it the devotion of our planters, will give it the command of eastern funds or specie, and thus place it in a better position than any other banking institution in the United States. The timely aid which it afforded to our planters last summer has awakened a feeling in its behalf all over the country. It is decidedly the most popular bank in the State; and it has the means at its command of resuming specie payments sooner than any bank in the South.”†
The failure of the banks, including the deposit banks, almost arrested the operations of the treasury of the United States. May 12th the Secretary ordered collectors to keep in their own hands money collected for duties, if the deposit banks should suspend. Payments out of the treasury were to be made by checks on those banks. If such checks were not paid, at specie value, they would be received for dues to the government, and Congress would be asked to provide for them. Thus a new kind of currency was produced, and a kind of sub-treasury system grew out of the situation. A case is mentioned in which ten per cent. premium was paid for gold to pay duties, while debentures were paid by checks on the deposit banks payable in their notes.‡ Such cases might occur, if the person entitled to debentures was so eager for his money as to accept the notes of the suspended deposit bank; but the government never authorized this or recognized it, and the checks were salable at a slight discount to all persons who had anything to pay into the treasury. The premium on them steadily advanced during the summer until it was just less than that on specie. In the meantime the deposits lay untouched. May 14th, the Postmaster-general ordered postmasters to take only specie or specie notes for dues to that department. It was in this connection that the lack of small coin was most felt. May 15th the Solicitor of the Treasury ordered collectors to postpone suits on duty bonds, at six per cent., until October 1st, if proper security was given. At a meeting at Boston, May 17th, very violent language was used about the rule that the Post Office Department should take only specie. A committee which was appointed did not call the meeting together again because it was found that the law allowed no other course than that which had been taken. The Collector at New York declared that he would take bank notes for duties on his own responsibility, but was rebuked and corrected by the Secretary of the Treasury; yet the receipt of treasury drafts on the deposit banks for duties was authorized. In New Orleans the Collector and Postmaster seem to have nullified the orders.*
The Secretary of the Treasury also addressed a circular to the deposit banks, asking them whether they expected to resume soon, what steps they were taking to bring about resumption, and what measures they proposed to take to indemnify the government for the breach of contract.
The feeling of the administration and its supporters toward the deposit banks at this time was one of animosity and resentment. It was felt that the Jackson party had broken down the great Bank for them, had given them a magnificent chance, had put faith in them and loaded them with favors, and had even incurred odium on their behalf, and that the banks had returned this only by selfishness and folly. It was felt that they had made no return to the Jackson party, although they had in fact given it their votes, but that they had by their extravagant behavior brought disgrace upon the administration and betrayed its responsibility. No one took up the defense of these banks, and the rancor against them found little expression. The most outspoken denunciation of them was in a letter by Jackson, July 9th:
“The history of the world never has recorded such base treachery and perfidy as has been committed by the deposit banks against the government, and purely with the view of gratifying Biddle and the Barings, and by the suspension of specie payments, degrade, embarrass, and ruin if they could their own country.” “Now is the time to separate the government from all banks—receive and disburse the revenue in nothing but gold and silver coin, and the circulation of our coin through all public disbursements will regulate the currency forever hereafter—keep the government free from all embarrassment, whilst it leaves the commercial community to trade upon its own capital, and the banks to accommodate it with such exchange and credit as best suits their own interests—both being money making concerns, devoid of patriotism, looking alone to their own interests—regardless of all others.”†
The opposition exhausted the vocabulary of impatient derision and contumely upon the separation of the treasury and the banks. They built up a theory of due connection between the banks and the fiscal operations of the government, out of which they affirmed that specie payments and financial health must necessarily follow, and not otherwise. Webster especially distinguished himself by going about the country elucidating these doctrines. From them were derived the stock objections to the independent treasury which were reiterated again and again during the following five years. The policy adopted by the administration at this juncture prevented the national treasury from being dragged down into the sink of bankruptcy into which the banks had plunged themselves.
In the meantime the distribution of the surplus revenue had been taking place. The first three installments were paid to the States in January, April, and July. While this operation was going on, the Treasury, which was giving away $37 millions, and which had several millions more locked up in the deposit banks, which it could not use without sacrificing the principles of currency and banking to which it was bound by law, was falling into great distress to meet its current expenditures. May 15th the President called an extra session of Congress to meet September 4th. In his message he enlarged upon the mischievous effects of the expansion of credit, and said that “the selected banks performed with fidelity and without any embarrassment to themselves or to the community their engagements to the government, and the system promised to be permanently useful; but when it became necessary, under the act of June, 1836, to withdraw from them the public money for the purpose of placing it in additional institutions, or of transferring it to the States, they found it in many cases inconvenient to comply with the demands of the Treasury, and numerous and pressing applications were made for indulgence or relief. As the installments under the deposit law became payable, their own embarrassment and the necessity under which they lay of curtailing their discounts and calling in their debts, increased the general distress, and contributed with other causes to hasten the revulsion in which, at length, they, in common with the other banks, were fatally involved.” He declared that the law of the United States, from the beginning, provided that the revenue should be received in nothing but gold and silver. “Public exigency at the outset of the government, without direct legislative authority, led to the use of banks as fiscal aids to the Treasury. In admitted deviation from the law at the same period, and under the same exigency, the Secretary of the Treasury received their notes in payment of duties.”* The only justification for this was that the notes were immediately convertible into specie. The law of 1836 and the resolution of 1816 left the Treasury no place of deposit and no currency for its receipts. The government funds were locked up in the suspended banks, and there was a large deficit. He was opposed to the national bank; the State banks had proved incompetent; that “experiment had failed.” He proposed the independent treasury system, with gold and silver as the sole medium for the transactions of the government. This became the proposition around which the political battle was waged for the next four years. It split the democratic party, the radical or loco foco wing supporting the proposition, and the bank democrats going into the opposition in order to oppose it. The whole bank interest, therefore, was united against it. Sometimes they alleged that if the federal government did its business with gold and silver only, this would give it control of the entire commerce and finance of the country; sometimes, on the other hand, they declared that if this measure was adopted, the federal government would lose all power to bring about a resumption of specie payments, and would thus abandon its most important duty in the existing circumstances. It should also be noticed, with respect to the alleged curtailments by the banks, on account of distribution, that they made none during the latter half of 1836, but, on the contrary, increased their loans and discounts from $164 millions to $166 millions.*
The Secretary of the Treasury, in his report at the opening of the extra session, stated that, in trying to find other depositories which could satisfy the requirements of the law, he had succeeded in finding but one. Four had not suspended and one had resumed, so that he had six at his disposal.†
If, at this moment, the United States Bank of Pennsylvania had been a specie-paying bank, impregnable in its banking strength and integrity, pursuing its way in the midst of the storm as a model of sound finance, its notes alone would have satisfied the requirements of the law, and would have sufficed in quantity, so that they would have become the currency of the federal Treasury; neither would the Secretary have dared, when he was scanning the country for a depository, to pass it by.‡
The Secretary proposed that an issue of treasury notes should be authorized, both interest-bearing and non-interest-bearing; and in fact proposed the latter as a system of government currency. The Treasury report in December showed that the total amount nominally in the Treasury was over $34 millions. Of this, $28 millions was disposed of by deposit with the States. There were $1.1 millions of old, unavailable paper from 1819; $400,000 were in the mint for coinage. There were locked up in the deposit banks $3.5 millions, and there were trust funds $370,797. The net residue, therefore, actually at the disposition of the Secretary, January, 1838, was only $700,000. Of the eighty-six banks employed at the suspension, ten or eleven had paid over all the money held by them. Some still held very large sums.
In order to form some idea of the operations which were going on, and which within twelve months had been inflicting shocks upon the whole monetary system of the country, let it be noticed that the land speculations in the latter half of 1836 had been carried on under the specie circular, causing a movement of specie to the Mississippi Valley; also that the Secretary of the Treasury had been moving the public deposits inland, in order to distribute them “evenly.” The consequence was that the public deposits in the banks of the Mississippi Valley were some $8 millions in excess of the amount of surplus revenue to be distributed to the States of the Mississippi Valley; so that that amount in specie was called for to be transferred back again to the Atlantic coast.
Congress passed an act, October 2d, postponing the payment of the fourth installment until January 1, 1839. At that time there was no surplus, and the fourth installment never was paid. The whigs declared that there was a quasi contract, and they wanted to issue treasury notes in order to pay the amount. The Secretary of the Treasury wanted to recall or retain the installment because it was needed for current expenses. J. Q. Adams proposed to set apart the debt of the deposit banks to pay the fourth installment, and, if it was not sufficient, to appropriate the payments for the government stock in the Bank of the United States to make up the deficiency. He showed that the balances due from the deposit banks were nearly all due in the southwestern States. The Treasury had drawn nearly all its credit from its best debtors for the first three installments, and nearly all its credit was yet outstanding with its worst debtors for the remaining installment. “The balances due from the deposit banks in the single State of Mississippi, a State with four electoral votes, are nearly $100,000 more than adequate to pay the whole fourth installment, receivable by herself and the six New England States.” Another act of October 14th took from the Secretary of the Treasury the power to recall these “deposits” with the States and conferred it on Congress, who have never had courage, even in the exigencies of the civil war, to recall this money. October 16th, a law was passed to institute suit against the deposit banks for the deposits, unless they should pay or give bonds with security to pay, in three installments, July 1, 1838. January 1, 1839, and July 1, 1840. In his message to the New York Legislature in 1840, Governor Seward said that the fourth installment was still withheld. “I cannot,” he added, “doubt that you will insist upon the fulfillment of the pledge of the federal government, and will, at the same time, protest against the withdrawal of the installments already received.”
October 12th, treasury notes were authorized in denominations of not less than $50, receivable in all payments to the United States, and bearing not more than six per cent. interest. On the same day an act was passed extending the credit on all bonds for duties similar to the extension which had been granted by the Treasury Department since May. Each bond was to have an extension of nine months.
The first bond of the Bank for the government stock was due in September, 1837. It bought up, in anticipation of this payment, drafts by the Treasury on the deposit banks, in behalf of the States under the distribution. There was some objection at the Treasury to receiving these; but a clause was introduced into an appropriation bill allowing it.
The monthly reports to the Auditor of the State of Pennsylvania, which were called for by the charter of the United States Bank, were regularly made during 1837. The capital is put at $28 millions until July 1st, when it is put at $35 millions again. The loans in Europe, on the 1st of January, were $6,788,194, and so remained until August 1st, when they began to decline, and were, October 2d, $4,798,611, where they remained until the end of the year. The bonds in Europe begin May 11, at $4,318,149; December 1st they were $6,728,189. Bills receivable for post-notes begin, June 3d, at $2,644,242; they declined gradually to $713,570 in December. From July 1st the circulation of the old and new Banks was stated separately. December 1st that of the old Bank was $27.5 millions.
In September, 1837, Jaudon’s commission as agent in England was enlarged. He opened an agency with such extended functions as to be almost a branch of the Bank of the United States.
It was thought by some that Jaudon might injure the “situation and prospects” of the Bank of England.* In February, 1838, he was said to be exchanging shares of the Bank for its bonds. The correspondent thought that he must have disposed of $3 millions worth of shares. They were said to be the leading object of speculation, and the price ruled higher there than here.† March 2, 1838, Jaudon gave notice that he would discount at three per cent. the bonds of the Bank which would fall due April 1st. A correspondent says that, by this notice in respect to the bonds, the agent of the Bank “by the aid of his meltings of the bills given for cotton and State securities has succeeded in giving a couleur de rose aspect to that particular description of security.”‡ These operations were not, however, regarded by the Englishmen without suspicion. The correspondent says that it is hardly understood how Jaudon has accumulated the capital which he appears to have; “but some go so far as to say it has been done by the issue of fresh bonds on the sale of shares.” He also undertook to exercise some control of the London money market, and so found himself at war with the Barings and the Bank of England, who disapproved of his proceedings. The Barings refused to keep the agreement which they had made, the previous spring, to meet the drafts of the Bank of the United States. One object of enlarging Jaudon’s mission in September had been that he might take their place. This, however, made the bills of exchange drawn by the Bank, drafts of a principal on an agent, and the Bank of England refused to open an account with him.§ The London “Times” said, a year later, that he was able at first, when credit was easy, to get an appearance of success, but that afterwards his position was false.∥
In October, both in this country and in England, the financial situation seemed very much improved, and it was generally believed that the crisis was over. It was declared in London that the American debts had been paid with unexpected promptitude, and that this had greatly relieved the situation.¶ In November, $2.6 millions, five per cent. canal stock of New York, was sold to the Albany banks at 106, equal to specie par, to be paid for in specie as wanted for the canals, and in the meantime to be used solely to get specie. The banks were to provide the Commissioners with specie which would pay the interest on the State debt until April, 1838, and were to pay interest on the stocks sold or loaned to them.
In January, 1838, Charles Kuhn tried to force a forfeiture of the charter of the Bank of the United States under that section of it which provided that if it should ever refuse to pay any of its obligations in gold or silver, the holder thereof might apply to any Judge, who should give ten days’ notice of a trial, and if the facts were substantiated, should so certify to the Governor who should by proclamation declare the charter forfeited.* Kuhn commenced the proceedings, but during the ten days’ delay the Bank paid the note with twelve per cent. interest, and it was held that the former holder of it could no longer, for public purposes, bring about a forfeiture.† Kuhn seems to have renewed his attempt in March. The Court gave full validity to the notice which had been posted in the Bank upon the suspension of specie payments, that all notes, checks, and drafts would be “payable in current bank notes of the city of Philadelphia.” This was declared to be due notice and warning to Kuhn that he could not expect money for an obligation of bank notes, and the Judge said: “I decline reducing the testimony to writing and transmitting it to the Governor, the applicant not having, according to my judgment, substantiated the facts of his case.”‡ This rendered another of the supposed guarantees of the public against the abuses of banking nugatory. In another case Kuhn recovered $7,000 with twelve per cent. interest from the Bank, being deposits due him on the 8th of June, 1837, which the Bank had refused to pay except in current funds.
The current quotation of specie in 1837 and 1838 was for half dollars. The premium at New York, in May, was eleven; it declined steadily until the 1st of January, 1838, when it was three; and it ceased to exist on the 20th of May. The exchange at New York on New Orleans was at seven to ten discount in May; January 1, 1838, it was at two to three discount; but on the 19th of May it was from eight to ten discount. The exchange at New York on Mobile, January 1, 1838, was from five and a-half to six discount; April 21st, it was from twenty-five to thirty, but then improved until May 20th, when it was twelve to fifteen. February 10, 1838, exchange on London at New York was at seven and a-half premium; specie being at three and a-half premium; making sterling exchange really five and a-half below the true par. In March the domestic exchanges were quoted at New York as follows: Mississippi, twenty-five discount; Tennessee, twenty discount; Alabama, seventeen discount; Georgia, ten discount; Ohio, eight discount; Michigan, twelve discount; and Wild Cat, twenty-five discount.
About April 15, 1838, notice was posted at Prime, Ward & King’s that arrangements had been made with the Barings and the Bank of England to send to this country £1 million sterling in specie to support the banks in resumption, and that £100,000 had already come; but in May the Bank of England receded from this undertaking.* There had been some quarrel between Jaudon and the Bank of England, of which only obscure and certainly inaccurate information transpired here. “The cause of that quarrel originated in the jealousy with which Mr. Jaudon’s doings in London were watched.” “Mr. Jaudon, we all know, was very coldly received by the Barings. The Bank of England refused to keep an account with him, and he was tabooed for a while. He very quietly, however, worked his way and surprised everybody after a while by a great operation in which he underbid the Bank of England, as before stated in this paper, backed by the immense cotton batteries Mr. Biddle was sending him, and having principal control over that great staple. He had not much to fear even from the Bank of England, cotton being better than bank paper and quite as serviceable as specie.” The Bank of England has retired from its enterprise to export specie, sacrificing the insurance already paid on an amount on board ship. Specie is also being sent from New York to Philadelphia, which does not come from the New York banks, but may be part of the consignment from England. “The London ‘Morning Chronicle’ tells us the Bank of England has made peace with Mr. Biddle, and here we have a clue. The same journal insinuates that the Bank of England was weary of the war.” There were rumors that Jaudon was invading the business of the Bank of England and would demand specie of it. “The cotton market in Liverpool, we have reason to believe, has been sustained alone by the irresistible energies of Mr. Biddle. His stock has been immense, and he would not submit to the sacrifice, and he was not compelled to submit forthwith. However, to sustain the market forever, specie going out all the while, was a thing impossible. The cotton market began to droop. This effort of his with the Bank of England—this reconciliation—may have been to save it, and it may be that it will be kept stationary, the orders being countermanded for the exportation of specie. * * * Of the wisdom of Mr. Biddle’s policy in waiting for another crop before the resumption of specie payments, when all the banks of all the States could resume at once, we have never had a doubt; of the admirable manner in which he has carried through the storm every solvent merchant of his own city, all Philadelphia speaks with pride and exalted satisfaction, as it contrasts its own condition with the mischievous rashness which a violent contraction of the currency has inflicted here, but as New Yorkers we were compelled to resume, crop or no crop. * * * Among the other curious movements of the times is a petition now in circulation in this city, soliciting Mr. Biddle to establish a branch of his Bank, or a bank, in this city under a general banking law. Politically and commercially speaking, this is one of the phenomena of the day. To say the least, after all the hard hits he has had here, and the way we have legislated him out of our domain, the spectacle of his coming thus back would be a curious one, but mercantile men have the greatest confidence in his foresight and sagacity. Whatever be the differences of opinion about his policy as a Pennsylvanian, there is none of his skill as a financier for the section of country he works in.”* This passage has very little value for facts, but it is very important for the rumors which were afloat and the opinions which were current at the time. There was a great desire at New York that a branch of the Bank of the United States should be re-established there. This desire existed especially on the part of those who were dissatisfied with the policy of contraction, and thought that the policy advocated by Biddle was the proper one. May 31st, Biddle wrote to the New York Board of Trade: “The repeal of the specie circular by Congress, which took place yesterday, is deemed the commencement of a more harmonious relation between the banks and the government, and the Board of Directors hastened to show their confidence in it by renewing their connections with your city. Accordingly, I am instructed to apprise you that they will at an early period make the necessary arrangements for such an establishment as you request.”†
In August Richard Alsop of Philadelphia and George Griswold of New York deposited $200,000 in stocks, and organized a bank, under the general banking law of New York, with the name of the Associates of the United States Bank at New York. Some threats were made to enjoin the bank, but it commenced business on the 27th of September, and began to build a banking house on Wall street. It was always declared on behalf of it that it was an independent institution, allied with the Bank in Philadelphia, but not a branch of it.‡
On July 3, 1838, Biddle offered to loan $300,000 to the Governor of Pennsylvania, to repair the damages by a freshet in the Juniata, and look to the Legislature for reimbursement. The offer was accepted.§
[* ] Edinburgh Review, 1837; attributed to McCulloch.
[* ] N. Y. “Journal of Commerce,” October 9, 1837.
[* ] See Appleton; Currency, 1841.
[† ] 52 Niles, 81.
[* ] 52 Niles, 97, 100.
[† ] Ibid, 114.
[‡ ] 1 Raguet’s Register, 76.
[§ ] Ibid, 130.
[∥ ] Ibid, 161.
[* ] Ibid, 115.
[† ] Report of the Planters’ Bank of Tennessee, October 8, 1837.
[‡ ] 3 Gallatin’s Writings, 396.
[§ ] 52 Niles, 146.
[* ] 1 Raguet’s Register, 229.
[† ] 52 Niles, 162.
[‡ ] 3 Gallatin’s Writings, 395; Raguet, Currency and Banking, 188.
[* ] 2 Hammond, 470.
[† ] 1 Raguet’s Register, 225.
[‡ ] See page 251.
[§ ] Committee on Corporations, 1842.
[* ] 52 Niles, 193.
[† ] Democratic Review, December, 1838.
[* ] 9 Adams’s Diary, 363.
[† ] 1 Raguet’s Register, 97.
[* ] 52 Niles, 322.
[* ] Gouge; Journal of Banking, 264.
[† ] 1 Raguet’s Register, 191.
[‡ ] 52 Niles, 177.
[* ] 52 Niles, 210.
[† ] 2 Raguet’s Register, 58.
[* ] See page 22.
[* ] 1 Raguet’s Register, 150.
[† ] People’s Bank, Bangor, Me.; Brooklyn Bank, Brooklyn, N. Y. (after it resumed); Planters’ Bank of Georgia; Insurance Bank of Columbus, Georgia; Louisville Savings Institution, Ky.; Bank of the State of Missouri.
[‡ ] See the quotation from Gouge, page 273.
[* ] 1 Raguet’s Register, 235.
[† ] Ibid, 334.
[‡ ] Ibid, 349.
[§ ] N. Y. “Express” in 54 Niles, 161.
[∥ ] 56 Niles, 294.
[¶ ] 1 Raguet’s Register, 205, 207.
[* ] See page 228.
[† ] 2 Ashmead, 170.
[‡ ] 2 Raguet’s Register, 126.
[* ] 54 Niles, 128, 161, 177.
[* ] New York “Express,” in 54 Niles, 161.
[† ] 2 Raguet’s Register, 13.
[‡ ] See page 362.
[§ ] 55 Niles, 306.