Front Page Titles (by Subject) § 3.—: 1838 and 1839. Treasury Notes and Bank Notes. Continuation of the Cotton Operations. Second Failure of the United States Bank of Pennsylvania. Second General Bank Suspension, South and West of New York. - A History of Banking in all the Leading Nations, vol. 1 (U.S.A.)
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§ 3.—: 1838 and 1839. Treasury Notes and Bank Notes. Continuation of the Cotton Operations. Second Failure of the United States Bank of Pennsylvania. Second General Bank Suspension, South and West of New York. - 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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1838 and 1839. Treasury Notes and Bank Notes. Continuation of the Cotton Operations. Second Failure of the United States Bank of Pennsylvania. Second General Bank Suspension, South and West of New York.
The treasury notes authorized in 1837 were not re-issuable. In May, 1838, the amount authorized had been exhausted, and the Treasury was once more in distress. They were made re-issuable. May 31st, Congress resolved that there should be no discrimination in the currency received by the government for different parts of the revenue. This was a revocation of the Specie Circular. No other laws were passed in regard to the collection of the revenue.
In a new treasury circular, June 1, 1838, the Secretary declared that he was thrown back on the Resolution of 1816. He ordered that no bank note under $20 should be received; none which were not “payable on demand, in gold or silver coin, at the place where issued,” and “equivalent to specie at the place where” received; none of any bank which, since July 4, 1836, had issued any note for less than five dollars. As matters stood these were very stringent limitations. It was said that there were only four banks in New York City which could satisfy them.* The bank interest was by no means satisfied. Its influence had availed to cause the treasury notes (since their use was unavoidable), to be put under strict limitations, lest they should supersede bank notes. Necessity had now forced the step of making the treasury notes re-issuable, but the banks looked forward to a time, soon to come, when the public business would, once more, be done altogether with bank notes. They were banded together to bring this about and, if they could succeed, they were indifferent to the danger that some of their number would so abuse it that the Treasury might be left with their notes as an unavailable asset, as in 1818. The point was well stated by Silas Wright, in a report of the Senate Committee on Finance: “Try the proposition under consideration upon the banks themselves. Would they receive each other’s notes at par when they were all specie-paying banks? Will a single sound bank among the whole number now consent to the passage of laws which shall compel them to receive each other’s paper at par, or even to receive it at all, after they shall have resumed specie payments? Most certainly not. Then shall Congress by its legislation compel a credit for the notes of the banks at the Treasury, which they will not give, upon any terms, to the notes of each other? Most assuredly the banks will not have the effrontery to ask Congress to do this.”
By an act of July 5th, the clause of the deposit act which forbade the receipt of notes of banks which issued small notes was suspended until October 1st. The Finance Committee of the Senate had made a report construing that law that if a deposit bank had suspended, or had failed to honor government drafts in specie, it must be discontinued as a depository, but might, upon resumption, be reinstated.
One thing in the public action of the Bank which had caused more general dissatisfaction than anything else was the continued circulation of the notes of the old Bank. As the New York “Journal of Commerce” argued, April 18, 1838, nobody was responsible for them. “Suppose somebody should get possession of the old notes of Stephen Girard’s bank, which have been paid by his executors, and put them in circulation. No one will pretend that the executors of Mr. Girard would be bound to pay them. On the contrary, we reckon that whoever should be guilty of such an act would have his conduct characterized by some short words and be sent to prison to answer for his crime.” February 12, 1838, the Senate Committee on the Judiciary made a report condemning the Bank for keeping these notes out, and submitted a bill making it a misdemeanor for the officers of any bank whose charter had expired to issue its notes, punishable by a fine not exceeding $10,000, or imprisonment at hard labor for not more than ten years, or both. A very hot debate arose over this bill, not upon the issue directly presented by it, but upon the whole political struggle about the Bank and the financial situation. The act was passed July 7th, that part of the penalty consisting in imprisonment being reduced to not less than one nor more than five years, and it was also provided that the federal Circuit Court might prohibit such act by injunction.
In May the notes of the old Bank were at four discount in Boston.*
The Treasury of the United States being very destitute of funds, an act was passed July 7, 1838, authorizing the sale of the third bond of the Bank for the government stock, which would fall due in 1839. It was bought by the Bank. At the next session, in answer to a resolution of inquiry, the Secretary reported that the bonds of the Bank could not be sold either here or abroad on the terms set by law, except to the Bank; because the United States would not guarantee the payment. The purchase money was to be paid in specie or its equivalent, which was put to the credit of the United States August 1, 1838, and the Treasury found itself once more using drafts on the Bank. October 8th, the Paymaster-general made known to his subordinates that arrangements had been made with the Bank to pay the drafts of the Treasurer, and he authorized them to use its notes when they were acceptable to the payee and as far as they were legal.* This was regarded as no slight victory for the Bank.
In August there was a great improvement in trade at Baltimore, Philadelphia and New York, but the banks of Philadelphia had to contract suddenly, which produced a stringent money market.†
In that month the Smithson bequest, $500,000 in specie, was received. The act of July 7, 1838, ordered the Secretary of the Treasury to invest it in five per cent. State stock. He advertised for bids for it and bought bonds of Arkansas, issued for the Real Estate Bank.
In October, 1838, there was great speculation at New York on the debts of the sections still under suspension. Credits in that section were held over by means of certificates of deposit and post-notes, in the expectation that they would increase in value upon resumption. “The largest of all borrowers is the Bank of the United States. It has been able, by the establishment of its bank in New York, to borrow about half a million, by way of deposits, and its post-notes are constantly in market at six per cent. A large portion of those which have fallen due in September and October have been renewed for six months more. It is estimated that from $2 millions to $3 millions of the post-notes of the United States Bank are now held by our city banks.” The Bank of the State of South Carolina was also negotiating the “Fire Bonds” of that State, through the agency of the Bank of the United States.‡
At the opening of the cotton season of 1837-8, the speculation in cotton began to attract attention in England, where the buyers did not think that the state of the market for the finished goods warranted an advance in the raw material. The speculation, therefore, retarded the sales, but, in July, 1838, a correspondent writes from Liverpool:
“During the last few months, since the cotton has been arriving in great quantities from the United States, there has been a great struggle here between the buyers and sellers about the prices. The large holders here have been straining every nerve to hold the cotton in order to keep up the prices—the spinners and manufacturers have been pursuing the opposite policy of taking as little as possible. * * * But for the United States Bank, and the other banks of our country that came into the market, including also their policy of a suspension of specie payments, the value of our present cotton crop would have been $10 millions less than it will fetch. The agents of the United States Bank here, Humphreys & Biddle, have an immense stock on hand, and are daily receiving more. * * * The policy of delaying the resumption of specie payments in the South, whatever be the morals of it, has undoubtedly realized $10 millions to the United States that would have been thrown away here. Recollect I do not approve of any banks going into commercial operations; but our banks were forced into that position by an overruling emergency, and the doctrines held forth and violently persisted in by the Barings and their agents in New York were narrow, selfish, suicidal, and destructive to southern interests and southern property.” “Humphreys & Biddle will make large profits by their commissions; the Bank will lose.”* Ten days later the same correspondent wrote that the buyers and sellers of cotton differed greatly as to price. Humphreys & Biddle were carrying an immense stock, and the spinners were only buying for immediate needs.† In September the report was: “Cotton is offered in abundance and prices are supported in a remarkable manner; holders not submitting to any decline.”
‡ In October, the New York “Journal of Commerce” said: “A large part of two cotton crops has now been exported by incorporated banks. It was well for them, perhaps, to come forward at the moment of extreme panic eighteen months ago—for there seemed to be no other means of moving the produce of the country. But their interference extensively with the last crop was of very questionable propriety, and their further interference now ought to meet the most determined resistance.”
“The Bank of the State of Alabama has already announced its intention of dealing in cotton again, and on a plan which is especially objectionable. That bank has already so mismanaged its affairs as to throw the State into great difficulty, and if it is suffered to go on, the credit of the State and its merchants cannot be resuscitated. Specie payments will never be facilitated in this way.”
The plan was put forth by the Branch at Tuscaloosa, apparently as an improvement on the scheme which the Mobile Branch had published in the previous January. It was dated August 29, 1838; proposed that cotton should be sent to the warehouses, the warehouse receipts being taken as vouchers; shipments at the expense and risk of the owner; to be made only to agents of the bank at Mobile, New Orleans, New York or Liverpool; sales to be made in four months. The owner must give for advances a bill at nine months with two endorsers; differences to be adjusted, if in favor of the bank, by a bill running not beyond the following February 15th. No advance was to be made for more than twenty-five per cent in excess of the value of the cotton when it was received; all exchange to inure to the shipper, the bank taking only one and one-half per cent. commission (later one per cent.). Advances might be made before the delivery of the cotton if the citizen was in danger of having his property sacrificed. If he will give proof of solvency, and security to deliver cotton by February 1st, to cover a bill on New York running not beyond February 10th, the bank will buy such bill. The drawer, when he delivers the cotton, may take up the bill on New York by one on Mobile at nine months. If the cotton is not delivered, the bill to be sent to New York and protested.
We shall see below what the effect of this plan was on the bank which adopted it, but we may be sure that it was very popular at the time. It was considered a “liberal policy,” and the bank which undertook it was thought to discharge its great function as a Bank of the State. In a case which grew out of it the Court said that it was strange that the error in the plan was not perceived that, in offering to advance more than the value, speculation and lawsuits were sure to be fostered. Some features of the plan are so strange that a great deal of familiarity with local and temporary circumstances seems necessary to understand them. The Court say that “the bills and the property are primary and concurrent securities,” and add that the usual way formerly had been that the owner shipped his own cotton and sold the bill against it to a bank.* After the commercial revulsion came on this method seems to have been almost entirely abandoned.
The reason given by this bank, in its circular, for the plan proposed was, in order to get specie funds with which to resume.
A new Board of Directors of the Mobile Branch a year later abandoned the plan of these advances on cotton, because of the wild speculation which threatened losses. Of the notes received by the previous Board with endorsements for the fourth quarter of the assumed value of the cotton not a dollar had been paid.†
In June, 1838, a commercial convention was held at Richmond which recommended an increase of the banking capital and an extension of the means of communication, then being constructed, as essential means to the development of the South. The banks of the Gulf States “after having gone headlong into cotton, have turned their attention towards provisions. They have bought up nearly all the pork (in New Orleans) and their purchases in Cincinnati and other places have been on a monopolizing or forestalling scale. The article, in consequence, has advanced $6 per barrel. There have been more meetings in Mississippi to inquire into the conduct of the banks. The planters find that the depreciated currency will not pay for their supplies, unless at exorbitant prices, and that the high rates they received for their cotton was a mere delusion of the bank system.”‡
As the season of 1838-9 opened attempts were made to make the cotton monopoly more comprehensive and more close. In a statement published a year later we find the situation and the program set forth as follows:
It is stated that Biddle had carried out his plan on the short crop of 1838, “by granting facilities to southern banks,” but that for the following year, according to the principle of all monopoly, that the compass of the operations must be constantly increased, he “found it necessary to strengthen the southern banks which had, as his indirect agents, swindled the planters out of the cotton to be sacrificed in Liverpool at their expense; while they were compelled to receive depreciated and depreciating paper for their labor.” The notes of these banks were at twenty-eight per cent. discount in 1838, and the banks must resume specie payment or they could not get control of the crop of 1839. “Under these circumstances foreign capitalists would have flocked to the South and purchased the cotton at a fair price, and thus, by throwing it into the Liverpool market, would have compelled Mr. Biddle to do the same, or borrow money and risk the market another year. Accordingly Mr. Biddle, in August and September, 1838, commenced rebuilding the southern banks that had engaged in the cotton trade; and he purchased the bonds of others to enable them to go into operation and to continue the cotton monopoly.”* The officers of the Girard Bank and of the Bank of the United States bought the State and bank bonds, chiefly those of Mississippi, some of which were amongst those most hopelessly indebted to the federal government for the deposits. “In purchasing the bonds of these banks, Mr. Biddle and his compeers had other strong personal inducements. They had purchased an immense amount of their notes at twenty-eight per cent. discount, and by the operation were enabled to use it at par.” These banks flooded the country with post-notes, issued for advances on cotton, at $60 a bale. “By thus holding back the crop, Mr. Biddle might be enabled to realize a large profit on the crop of 1837-38, which he had purchased, and in the meantime the planters of the South would be left to bear the whole of the loss from a falling market, after the monopoly had become too heavy for the credit system and the gambling system to sustain it any longer.”†
We can follow the action of the Bank to “help the southwestern banks to resume” at New Orleans and in Mississippi. In June, 1838, the banks at the former place wrote to Biddle to ask him to help them to resume, on the following January 1st, by furnishing enough of his notes to meet the demand which otherwise they would have to meet with specie. September 8th, he answered that the policy of the Bank had been, for a year, “to defer the resumption of specie payments until it could be safe and general throughout the Union.” It has tried to facilitate this by two measures: “first, by large loans to banks in those States where the difficulty of resumption was greatest; and second, by advances to the government whose disbursements are spread mainly over the South and West.” “We are preparing a large amount of the issues of the Bank, which will be sent to New Orleans, with instructions to use them freely, not only in the immediate business of the Bank, but whenever they can be made to contribute to the defense of the banks of New Orleans.” The banks of New Orleans were perfectly satisfied and voted to resume at New Year. All that he had told them was that he was printing bits of paper with which to buy the great staple of Louisiana; that these bits of paper would presently appear in their banks and that they might keep them and use them “in the place of specie” as long as they chose.
In regard to the operations and influence of the United States Bank in Mississippi the Bank Commissioners of that State, in their report of 1838 on the Brandon Bank, said: “The [Brandon] bank purchased with New Orleans funds of the agent of Mr. Biddle $75,000 of the notes of the defunct Bank of the United States. By this transaction $7,500 was realized by the Brandon Bank. Mr. Biddle’s agent, in consideration of receiving New Orleans funds for notes that no one was compelled to redeem, exchanged an equal amount of Mississippi River bank notes.” If this traffic is allowed, why may not Biddle in another season send notes enough to buy the whole cotton crop with notes which no one is bound to redeem? “It is common to hear persons speak of the liberality of Mr. Biddle’s bank and that the southern banks must rely upon him to enable them to resume specie payment. So far from his having given support, the banks of this State have, with one exception, suffered by their connection with him; for he has repeatedly dishonored checks with funds in his possession, and it is believed that he has bought up at a discount the notes of those banks that have confided in him, and placed them against the proceeds of sterling bills on which they had expected to check. We are strengthened in this opinion from the fact that the name of one of the persons who attached funds of the Brandon Bank in the possession of Mr. Biddle is the same as that of one of his agents in Philadelphia.” Biddle said that he dishonored the checks of the Brandon Bank, although he held its funds far beyond the amount of the attachment, for fear that, if it was known that he held funds of the bank, further attachments would be made. The Commissioners do not accept this justification and imply that he wanted to lay hands on the balance. “As he was preparing to resume about that time, perhaps he yielded to the law of necessity.”
Wherever the investigator comes on any of the questionable banking or State financiering of the period, there he is very sure to find the United States Bank or some members of the Bank clique in the midst of it.
John Ingersoll issued a circular in Mississipi, October 22d, asking for consignments to Humphreys & Biddle, on which he would make a fair advance, for the purpose of holding the cotton over until the next summer, if desirable, in order to realize the highest possible price. Bevan & Humphreys published a denial that Ingersoll had any authority from Humphreys & Biddle, but they stated that all persons who would ship cotton to that house might draw upon them at sixty days for two-thirds of the price, selling the bills with the bills of lading in the open market at the current rate of the day.*
In New York it was said, at the end of November, that not a bill against cotton had been seen. The United States Bank was buying the cotton in the South and selling exchange in the North at 109 3-4 as a fixed price. At this time money was at twelve per cent. per annum in Philadelphia, and the Bank was depressing the exchange lest there should be an exportation of specie. “Money in New York and Boston is said to be abundant, owing probably to the banks in those cities having made their curtailments before the resumption. It is supposed that were it not for the Bank of the United States supplying the demand for bills on London at nine and a-half, the rate would go to ten or ten and a-half, in which case specie would be exported.”* At Philadelphia the state of the case was quite different. The Bank of the United States issued a notice requiring fifteen per cent. to be paid on all stock notes every sixty days, and stocks were falling. Post-notes of the best credit were quoted at twelve per cent. per annum discount. Among the causes stated were: “The neglect of the banks before the resumption to reduce the amount of their loans to an extent equal to the excess which occasioned the depreciation of the currency, by which the proper check would have been given in time to importations and fresh speculations.”† The New York banks were said to have loaned very carefully since resumption and to be in a very sound condition. There was no pressure on the merchants, who had made but few notes; but there was some complaint from the brokers, and stocks were low. It is very noticeable that this is stated by the same newspaper which in May had expressed doubts of the wisdom of the New York plan.‡
On account of the complaints which began be to heard of the action of the Bank, Biddle found it necessary to publish another letter to Adams, in which he rehearsed all the defense of the policy of the Bank in making a corner on cotton, representing it as done in the interest of the southern planters. He said that the operations had been relinquished, which was not true. Finally he withdrew the Bank from all functions as a national bank. It wanted only “repose;” “abdicated its involuntary power;” “it will take its rank hereafter as a simple State institution, devoted exclusively to its own special concerns.”
In December the Liverpool cotton market was very dull and feverish. The spinners were alarmed at the speculation and, anticipating its failure and a fall in price, shortened work and diminished the demand. As the year 1839 went on, the developments in England were unfavorable. The crop failed, there was great distress amongst laborers, specie was exported, and prices fell. These facts were all unfavorable to an extension of credit, a revival of business, and an improvement in the price of cotton.
Biddle resigned the presidency of the Bank March 29, 1839. In his second letter to Clayton, in 1841, he says that the circulation, deposits, and other debts then amounted to $35.4 millions while the specie and the loans amounted to $42.9 millions. The Committee of 1841, however, say that the assets were already at that time to a large extent unavailable. The stock fell from 116 to 111 3-4. Thomas Dunlap was elected his successor. After his resignation an account was rendered by Bevan & Humphreys of the cotton operations, which showed a profit of $1.4 millions, on total transactions of $8.9 millions, which was divided, $800,000 to the operators, and $600,000 for the Bank. The $800,000 was drawn out between March 25th and May 22d.* In this year the Bank loaned $1 million to the State of Illinois. According to the contract, its ten-dollar notes were to be paid out on the Illinois and Michigan Canal. July 19th, it was allowed by a special act of the State Legislature to issue five-dollar notes for the sum of $2 millions, which it loaned to the State.
The year 1839 opened with a gloomy outlook in the southwest, especially at New Orleans.† In the spring there was great distress in Mississippi. A great deal of property was changing hands. The state of things was far worse than in 1837.‡ In June the post-notes of the Planters’ Bank, which then fell due, were not taken up. The southwestern currencies were falling to heavier discount. The banks in the North and East were curtailing. At Philadelphia it was said to be the worst period since the panic. According to the news from England, in June, there was scarcely any market there for American securities.
In April, 1839, cotton was advanced one and a-quarter penny in Liverpool by sales on cross accommodation bills.§
In June the news from England was bad. The money market was stringent; the Bank of England was losing specie; there was less demand for cotton; and the mills were running short time or were idle; cotton was dull and lower; the Bank of England rate was five and one-half per cent.; and the bills for the speculative purchases in March and April were coming due.
A circular was issued by S. V. S. Wilder, in June, attempting to do more cleverly and completely what Ingersoll had tried the year before. It seems that the latter had blurted out the facts of the arrangement too distinctly. Wilder denied that the United States Bank had anything to do with his plan, which was false. The circular stated that cotton, by the latest advices, was dull and lower; that the English spinners were working short time, in order to get lower prices on cotton, since the great bull of the last year was out of the market. A grand combination to sustain cotton was proposed. Either the banks would advance enough to hold back the cotton for three months, or all might consign to one Liverpool house which should carry it until the present stock was worked off. In a conference at Philadelphia, the second plan was adopted, because, on the first plan, the market would not be provided with any bills of exchange. Advances of three-quarters of the value, at fourteen cents a pound, were to be made on all that was sent to Humphreys & Biddle, who would “hold on until prices vigorously rallv.” If the crops should prove large the “great and powerful interest” would hold back the first supplies of it. This circular was unsigned and was not to be published, but it got into the newspapers and, the New York “Journal of Commerce” having traced it up to Wilder and the leading officers of the Bank, the former published a vehement denial that the Bank of the United States had anything whatever to do with it.* It was afterwards stated that this circular was written by Gen. Hamilton of South Carolina.†
July 20th, a meeting at Macon called a southern convention to deliberate on the cotton circular and the means of giving stability to the price of cotton. They had before them a circular from southern representatives at New York, in which it was shown that cotton was a regulator of the exchanges and a standard of value. It was resolved that it was necessary to combine the banks with the cotton producers; that the banks of the South should take bills of lading and insurance policies and give post-notes at twelve and a-half cents per pound, so as to hold the crop for a price, the whole being consigned to a few houses in Liverpool and Havre. Just at this time the “Manchester Guardian” declared that there was no market for the amount of manufactured goods which the machinery could make, unless the price was lowered; that the advance in cotton therefore stopped spinning. “The evil does not consist in the high price of cotton so much as in the general distrust of the stability of that price, which is produced by a knowledge of the speculative dealing in the United States.” [In fact the crop was short, and if there had been no speculation, the price would probably have been higher than it really was when it was believed that a large amount was kept back. The supply for the last half of the year was twice the amount which had been used in the first half.] It is “one of the most rash and insane speculations of modern times.”‡
Under the State charter the Bank paid four per cent. dividends every half year until July, 1839. It was apparently these large dividends which deluded the small investors, and made them cling to the Bank long after men of affairs knew that it was a mere shell. When it failed this class of investors and foreigners owned nearly all of it. Biddle had then only one share.§ It is hardly too much to say that the Bank never had any right to pay a dividend after the State charter was taken.
In July the rate for loans at Philadelphia was fifteen per cent. and eighteen per cent.; the United States Bank was contracting. Its stock was at 114. The Bank was still trying to control the sterling exchange; but at New York there was opposition to this policy and a shipment of specie was declared necessary.∥
At the end of August the money market in England was so stringent that there was almost a panic. Cotton was a penny lower, and Jaudon was in great distress. A report reached the United States that the Barings had announced in their circular of August 26th the expectation that he would fail. This was afterwards corrected. They did not do this, but they sent out a list of the securities which he had offered them as collateral for a loan which he wanted.* He was, however, writing most earnestly to Humphreys & Biddle, demanding money. They must sacrifice cotton at any price in order to sustain him. “Life or death to the Bank of the United States is the issue.” The Bank at Philadelphia recognized and assumed the loss which was incurred, and urged Bevan & Humphreys to authorize Humphreys & Biddle to sustain Jaudon.†
The notes of the United States Bank of Pennsylvania were kept at par in New York by its ally there. Hence the Philadelphia brokers used them as a remittance. As the exchange was against Philadelphia, this must have occasioned a loss. In August, 1839, the Bank refused to keep brokers’ accounts in order to try to break up this arrangement, although it was afterwards said that only one account was closed.‡ In fact, this incident had no importance except as a symptom of an approaching crisis.
From the 17th to the 24th of August, 1839, the Bank of the United States sold, in New York City, bills on Hottinguer which were forced on the market at a loss. As the Bank had no balance with him, and he had given notice that he would not honor any drafts unless he was covered, it was necessary to remit specie to meet the bills which were sold. Coin was demanded of the New York banks in order to make this exportation. On the 27th, the checks which had been obtained for the bills sold were presented in the banks at 2:30 p. m. with a peremptory demand for specie, a notary being present to make the protest. The purpose was to compel the New York banks to suspend in order to give the Bank of the United States a pretext for doing so. The total amount of these bills was seven million francs.§
September 1st, there was a great demand for loans in New York, Boston, and Philadelphia, and still more in the Southwest. The Philadelphia banks now had large amounts of the southwestern paper, which they had continued to take for goods but which they could not now collect. They lent post-notes to the merchants, which were sold in the other cities, thus absorbing capital elsewhere, which all went into the gulf of this southwestern debt. The post-notes of the Bank of the United States were at eighteen per cent. discount per annum; its stock at 104 1-2. At the end of September the United States Bank ceased to supply exchange, and the New York banks began to draw. October 1st, it was reported that the banks of New York, Boston, and Philadelphia had been moving specie to and fro.
On the 9th of October, the United States Bank failed on its home business, all the Philadelphia banks being exposed to a run on account of drafts from New York. On the following day some of the drafts on Hottinguer came back protested. Jaudon had induced Rothschild to take them up for the credit of the Bank, ample security, as was then supposed, by State and other stocks being given.*
These proceedings were ruinous to the credit of the Bank. The Committee of 1841 say that on account of “the general derangement of affairs, the suspension of specie payments, and the discredit consequently thrown upon American securities, and more particularly from the course of the Bank’s dealing in foreign exchange, by drawing bills to a large amount without having previously provided the funds for their payment, and thus subjecting their agent in London to the necessity of obtaining money in haste, in order to maintain the credit of the Bank, it was no longer found possible to command funds there upon the same favorable terms as before. And accordingly upon Mr. Jaudon’s subsequent negotiations for loans, to the amount altogether of $12,212,697.46, there is chargeable to losses the sum of $1,149,907.04, being for discount, commissions to foreign bankers, and other charges; not including Mr. Jaudon’s own commissions, and the expenses of the agency in London.”
The stock of the Bank fell to 93 3-4; its notes were at eleven per cent. discount at New York. As soon as the disturbance produced by the Bank was withdrawn, things improved there, foreign exchange being at par.
The facts in regard to the proceedings of the Bank of the United States, at this juncture, if told by an enemy, might seem colored by malice, but they are stated by Cowperthwaite in a letter to Biddle, March 23, 1841. He says that a new crisis was anticipated in the fall of 1839, and “it was deemed best to make it fall first upon the New York banks.” In fact, the great Bank had been vindictive ever since the resumption of 1838. Its leadership had been set aside. The New York banks had proceeded without it and usurped its functions. In 1839 it found itself sinking and it was driven to the most desperate measures inspired by malice and rancor. The United States Bank and debtor interest caused a meeting to be held at New York as late as October 23d, in order to try to organize a run on the banks.†
At this time the following very strong criticism and review of the proceedings of the Bank during the preceding eighteen months appeared in a New York paper:
“The suspension of 1837 found it [Bank of the United States], as it was generally understood, greatly extended in every direction, with many millions due from the South and the West and from the insolvent interests here and elsewhere, with many other millions invested in various internal improvements, and with the bonds for the sale of the branches of the old Bank for the most part uncollected, constituting altogether a large portion of its capital rendered wholly unavailable. Hence, as was believed, the reluctance with which, after resisting to the utmost the exhortations and finally the example of New York, in 1838, in resuming specie payment, it came at last into that measure. But in order to do so, it, even then, is reported to have been largely a borrower, and up to the moment of its recent suspension it has continued the policy of borrowing and of extension, in the face of known losses, which the very silence observed concerning them and the withholding of all official reports, served in some sense to magnify, and when all knew that a large amount of its means was invested in inconvertible securities and consequently out of its own control.”
Probably it expected by its policy more easily to collect its outstanding credits.
“If by an opposite course, the Bank on resuming had drawn together its scattered resources, and instead of buying or advancing on all sorts of stocks and cotton, and extending itself by new issues, it had paid off its own debts and confined itself to the legitimate objects of banking, the dealing in the regular business of the internal exchanges, and discounting safe mercantile paper, it seems hardly questionable that not only the Bank of the United States, but all the banks, South and West, would have been in a safe position; that the foreign exchanges would have been in our favor; and that the vast mischief which now surrounds us would have been avoided.”
No doubt political and financial circumstances have made its management difficult, “but latterly even the government had made common cause with that institution, availed itself of its credit, and employed it as an agent for disbursing the public money. But this very connection, it may be, has rather served to stimulate than restrain its issues. Under all these circumstances it ceases to be matter of surprise that the bank has suspended its payments and dragged into its vortex so large a number of other banks that were more or less connected with or dependent upon it.”*
The banks of Philadelphia having suspended on the 9th, those to the South and West suspended as fast as the news reached them. Specie was at seven per cent. and seven and a-half per cent. premium at Philadelphia. On the 12th, the United States Bank stock was at seventy, but on the 15th it had risen to eighty. In November it was at sixty-five. The banks of Rhode Island suspended but soon resumed; those of New Jersey did not suspend.
In the month of October, the New York and Philadelphia newspapers were in open war about suspension. The Philadelphians declared that New York could not maintain specie payment; that the pretense of it was false, and the merchants all ruined. The New Yorkers answered that it was doubtful if the Bank of the United States was solvent.†
The extracts from the New York papers, in October and November, show that the public then had ample reason to doubt the solvency of the United States Bank. In November the “Harrisburg Reporter” said that it was insolvent; in London its securities were unsalable, and its credit was broken.*
The New York banks were confident of their ability to sustain specie payments. “There is every reason to be sure that New York will go on well.” The “American” said that the monetary stringency on both sides of the water was due to the borrowings of the Bank of the United States; that New York must persevere; that she would, if she kept a sound currency, become the center of home and foreign trade.† October 15th, the Philadelphia banks stopped redeeming their fives, having lost in five days $156,000 in that way. During 1837-8 the banks of Pennsylvania made dividends, although it was prohibited in the charters of most of them. After the suspension of 1839 most of the banks at Philadelphia resolved not to declare dividends until the pleasure of the Legislature could be known.
The monthly reports of the United States Bank to the Auditor-general were suspended from October, 1838. After its failure in October 1839, that officer demanded a return, and those for thirteen months were sent all together in November following. It is alleged in interrogatories put to the cashier in a suit by Kuhn against the Bank, on an attachment, that the latest one (November, 1839), showed a surplus of $4 millions, and that it was so published here, but that a committee in the Bank found that the surplus was only $1 million; it was so sent to Jaudon and published in England, and reprinted here. The post-notes were reported to the Auditor $900,000 more than to Jaudon. If these were subtracted the surplus would dwindle to $100,000.
October 11th, a meeting of merchants was held at Boston to confer with the banks about an extension of discounts. A resolution to suspend payment on notes of $5 and above was rejected. At a bank meeting on the 17th, it was resolved that the banks were able to sustain specie payments. On the 24th, the rate for first rate four months paper was three per cent. per month. The rate at New York was about the same. All the safety fund notes were discredited. Specie was coming from all parts of the country and being exported. On the 23d the banks of Philadelphia published an address to the public, in which they declared that the suspension of 1837 was necessary and proper; that all was going on well when New York prematurely resumed; that this forced the rest to follow; that Philadelphia had followed the correct policy in making loans to the South and Southwest; that the pretended resumption broke down in that section first. They then operate on the prejudice against the exportation of specie and against England, declaring that the banks could have paid specie but that it would have sacrificed the country around them to find means to buy food for the people of England.‡ This address well stated one view of the situation and of the policy to be pursued. Up to this time there had been hope and belief that the worst was over and that at any time prosperity might return, and it is possible that, if it had not been for the insane policy pursued in the cotton region under the leadership of the Bank of the United States, things might have turned for the better before this time; but the failure of October, 1839, was the real collapse of the movement which culminated in the crisis of 1837, and of the policy in respect to it, which had now been followed for two years. From this point on there was no escape from a complete liquidation, which would require that the industrial movement should be brought almost to a standstill before it could start again.
The New York banks resolved, October 25th, unanimously, that they would maintain specie payments, but according to the report of the Bank Commissioners, January 24, 1840, there was a contraction of $20 millions in the liabilities of the banks, within ninety days. November 8th, the safety fund banks of Western New York met at Auburn and made a plan for the redemption of their notes at the State Bank at Albany.
October 22d a cotton convention was held at Macon, at which a further and still more complete organization was aimed at, but it does not appear that the Bank of the United States was any longer a party to the enterprise. The wish at that convention was to get strength enough from the banks to hold on for a year, and there were loud complaints that consignments had been sacrificed to meet sixty-day bills. In November, there was a slight advance in the price, which was not maintained, but the English mills were generally on full time.
In March, 1840, the New York “Express” said: “The cotton business has entirely changed this year. Last year a large portion of it was in the hands of speculators, who, in many instances, with small means, were able by advances to control a large amount. The season turned disastrous and swept this class away. The facilities that were afforded by the southern banks induced large shipments, which in most cases turned out ruinous. The consequence is that the staple is now left to its own intrinsic value. Shippers buy and export as appears most for their interest. Manufacturers purchase to meet the demand, and the business is thus perfectly regular.”*
In regard to the last speculations of the Bank in cotton, we have the report of the Committee of 1841 as follows: The directors declared, December 21, 1840, that they had not known of the cotton transactions, and passed resolutions of “censure and condemnation.” “The third and last account, amounting to $3,241,042.83 [shipments of produce to the Liverpool firm] appears on the books [of the Bank] as ‘Bills on London; advances S. V. S. W.’ These letters stand for the name of S. V. S. Wilder of New York. Messrs. Humphreys & Biddle, to whom these consignments were made, continued their accounts in the name of Bevan & Humphreys, but without the knowledge of that firm, as appears by Mr. Cabot’s letter of December 28, 1840. The result of these last shipments was a loss of $962,524.13. Of this amount the sum of $553,908.57 was for excess of payments by Messrs. Humphreys & Biddle to the London agency, beyond the proceeds of sale, with interest thereon. The parties interested claimed and were allowed a deduction for loss on $526,000 of southern funds used in the purchase of cotton, when at a discount, the sum of $310,071.30; and also this sum, being bankers’ commission to Messrs. Humphreys & Biddle on advances to Samuel Jaudon, agent, $21,061,86; making $331,133,16, and leaving to be settled by the parties the sum of $631,390,97.”
[* ] 54 Niles, 225.
[* ] Elliot’s Funding, 1154.
[* ] 2 Raguet’s Register, 302.
[† ] 54 Niles, 353, 369.
[‡ ] See page 240.
[* ] 2 Raguet’s Register, 140; Corresp. N. Y. “Herald.”
[† ] 54 Niles, 384.
[‡ ] 2 Raguet’s Register, 255.
[* ] 2 Alabama, 451. (1841.)
[† ] Bank Commissioners, 1839.
[‡ ] 2 Raguet’s Register, 29.
[* ] In his letter to Adams, December 10th, Biddle boasted that the Bank had made advances to the amount of many millions to the banks of the southwestern States to help them to resume.
[† ] N. Y. “Evening Post,” August 24, 1839; quoted in McHenry, “The Cotton Trade,” p. 31.
[* ] 2 Raguet’s Register, 379.
[* ] 2 Raguet’s Register, 336.
[† ] 2 Raguet’s Register, 368.
[‡ ] N. Y. “Express” in 55 Niles, 225.
[* ] Second Report of the Committee of 1841. See page 345.
[† ] 55 Niles, 355.
[‡ ] 56 Niles, 96, 114; Raguet, Currency and Banking, 157.
[§ ] 56 Niles, 113, 293.
[* ] 56 Niles, 249, 258.
[† ] 56 Niles, 369.
[‡ ] 56 Niles, 351.
[§ ] Investigating Committee, May 18, 1841.
[∥ ] 56 Niles, 337.
[* ] 57 Niles, 277; 58 Niles, 72.
[† ] Biddle’s first letter to Clayton, 1841.
[‡ ] 56 Niles, 375, 405.
[§ ] 57 Niles, 119, 60 Niles, 121.
[* ] 57 Niles, 97.
[† ] 60 Niles, 121; 3 Gallatin’s Writings, 404.
[* ] N. Y. “American,” October 16, 1839, in 57 Niles, 140.
[† ] 57 Niles, 140.
[* ] 57 Niles, 140, 209.
[† ] 57 Niles, 139.
[‡ ] 57 Niles, 155.
[* ] 58 Niles, 32.