The America’s First Museum of American Finance

By Clyde A. Haulman credit business done. Confidence in ruined; multitudes in deep distress; each other’s ability to pay is very and a general mass disaffection to Writing from Richmond in May slight. [On Saturday it is said there the government…” In Boston, the 1819, Benjamin Brand told George were 12 notes laid over for protest.]” newspapers reported that “complaints Caskaden, a former retail merchant The decline in business activity left of hard times appear universal” and from the city who had moved to “(m)any store houses … shut up and that what was once a thriving town Alabama, “you have been lucky in written on ‘For Rent’” and took the “presents a dull and uncheery spec- removing from this place.” Caskaden’s bottom out of what had been a specu- tacle — silence reigns in the streets…” good fortune was to avoid the devas- lative boom in property. John Mar- Hezekiel Niles in his Register reported tating impact of the Panic of 1819 shall, putting it more concisely in a that a Philadelphia committee found on merchants in ’s capital. letter two months earlier, said, “We that employment in 30 industries Between 1818 and 1819 the number are in great distress here for . studied declined “from 9,672 in 1816 of merchant licenses issued in the Many of our merchants stop — a thing to 2,137 in 1819; weekly wages were city dropped almost 40 percent, and which was long unknown and was down from $58,000 to $12,000,” and it took until 1829 for the number of totally unexpected in Richmond.”1 Niles himself estimated that in New merchant licenses issued to reach their Virginia was not alone in its misery York, Philadelphia and Baltimore pre-panic peak. Describing business as contemporary observers across the some 50,000 were “either unemployed conditions Brand wrote, “We have country indicated that the Panic of or irregularly employed.” Niles also gloomy times here — many protests 1819 was a traumatic experience for reported that in Philadelphia “houses [failures] have taken place since I the new republic. For example, John which rented for $1,200, now rent for last saw you, and many more soon C. Calhoun, discussing the situation $450, fuel which costs $12, now costs expected… Many have backed out of with in 1820, $4 ½; beef 25¢ now 8¢; other things business.” The meant said, “There has been within these in proportion…” From Pittsburgh a that “(a)t this time there is very little two years an immense revolution of citizen’s committee “stated that cer- fortunes in every part of the Union: tain manufacturing and mechanical Above: Second Bank of the enormous numbers of persons utterly trades in their city and its vicinity, building in Philadelphia.

Financial History ~ Winter 2010 20 www.moaf.org which employed 1,960 persons in foreign markets for commodities that banks, sound by requiring state banks 1815, employed only 672 in 1819.”2 had fueled the American economy in to resume redeeming their notes in spe- With a monetary contraction under- the years following the cie on demand. Facing some reluctance way, the continued retirement of fed- and the rapid repayment of federal by state banks, the Second Bank nego- eral debt, much of it to foreigners, and debt, much of it to foreign bondhold- tiated an agreement whereby it would declines in the overseas markets for ers, that created the country’s first expand loans by $6 million in exchange American staples, the United States modern . for the resumption of specie convert- economy was headed for disaster. The In the events leading up to the Panic ability. Although the process was not most dramatic aspect of the disaster of 1819, the banking system played a completely successful, the discipline of was a rapid as prices fell critical role. With the end of the War convertability led state banks to restrict 30.6 percent between 1818 and 1821. of 1812, public land sales jumped dra- their notes and deposits from a total Stagnation of real output that for some matically. The Treasury Department of $67.6 million at the end of 1816 to parts of the country lasted well into grew concerned with the losses they $60.4 million a year later. However, the 1820s. Real GNP fell in 1819 and were taking because the revenue from this was more than made up for by the was flat over the period 1818–1821. those sales was mostly in the form of $20.6 million expansion of the Second The young republic’s rude intro- bank notes from the West and South- Bank’s notes and deposits leading to a duction to boom-and-bust capitalism west that were depreciated, or not cir- total expansion of the banking system’s reported by these sources was a com- culating at their face value, while much money supply of almost 20 percent for plex combination of financial market federal spending occurred in the East the year 1817. Attempts by European volatility, swings in international mar- where bank notes were circulating at or countries to return to a specie standard ket demand, and federal government close to their face value. That situation, in the years after 1815 further exac- financial activity. The actions of the combined with a growing federal sur- erbated the monetary problems in the second Bank of the United States, plus from both land sales and customs U.S. These efforts meant nations were along with those of state-chartered revenue, the prospect of a number of all trying to build up gold and silver banks, have received much atten- federal bond issues maturing in the reserves at the same time, thus placing tion. And, the monetary tightening next few years, and the false belief that intense pressure on the world’s specie of 1818–1819 sounded the alarm for the absence of a national bank had supply. an economy rife with and made it difficult to raise funds for the Following this initial action, the brought the economic optimism that war, led Congress to create the Second Second Bank went even further by had fueled the speculation to an end. Bank of the United States in 1816. expanding credit until loans stood at Although changes in money and credit The first order of business for the more than $41 million by mid-1818. were an important component in gen- new Second Bank was to make all the This expansion combined with the erating panic across the nation, ulti- nation’s currency, consisting mainly of dramatic increase in land sales in the mately it was the collapse of the strong bank notes issued by state-chartered West meant that notes of western Museum of American Finance

Bank of the U.S. check for $200 lent to Matthew Carey on May 1, 1795 and repaid three days later.

www.moaf.org 21 Financial History ~ Winter 2010 and southern branches of the Second Bank, which it had decided to redeem at any office as a means of devel- oping a uniform national currency, began to flood eastward, particularly to New York and Boston. Despite large imports of specie, the bank could not continue to meet the demand for note redemption. Thus, in July 1818, the directors ordered loans reduced at Philadelphia ($2 million), Baltimore ($2 million), Richmond ($700,000) and Norfolk ($300,000). The retirement of 1803’s Loui- siana bonds, scheduled to begin in 1818 and to continue through 1821, further complicated the picture. Such action on top of the greater-than $20 million in federal debt retired during 1817 meant that substantial government revenues did not reenter the economy directly, thus creating a smaller effect than if those revenues had been spent directly by the gov- ernment. Most importantly given the Second Bank’s contraction in the last half of 1818, about $3.5 million of the roughly $4.5 million in Louisiana bonds retired in October 1818 went as payments to foreigners. Of the total $11 million retired of the entire issue, some $6 million went to foreigners. Museum of American Finance This flow of funds out of the domestic Letter from to the head of the Bank of the U.S. in New Orleans economy meant that potential domes- directing him to cash drafts on Stephen Girard, dated February 28, 1822. tic spending was lost at a critical time, and it placed additional strains on the during this period with Great Britain president Langdon Cheves and contin- Second Bank. Treasury deposits at making up about half of that total. ued long past the end of the financial the bank dropped approximately $6 Between 1818 and 1819 in America’s crisis, subjected the bank to harsh million between October 1818 and most important foreign market, Great criticism. It was not until after 1823 January 1819 to an ending balance of Britain, the index of business activity and the naming of slightly less than $3 million — a two- fell 12.4 percent, and the value of total as president that the bank began to thirds decline in just three months. imports declined 16.5 percent with the regain public confidence and establish The contraction story’s final ele- importation of American grain declin- control over the nation’s monetary ment was also international. As Europe ing 74.6 percent. affairs. However, much damage had prepared for the resumption of specie The importance of the Panic of been done. The of the early convertibility in 1819, the resulting 1819 and the hard times that followed between Biddle and President economic slowdowns across Europe in its wake is found in the long-term over re-chartering from scarce specie combined with the impacts the depression had on public the bank would lead to its demise. return of good harvests on the Conti- policy and institutions. One institu- Other national effects include nent and in Britain meant that mar- tion affected was the Second Bank. changes in public policy regarding kets for American staples began to fall Early mismanagement and overexpan- debt and debt relief, poor relief, inter- sharply. Europe accounted for more sion, combined with a strong tighten- nal improvements and tariff protec- than 70 percent of American exports ing of credit begun in 1819 under new tion. With the depression worsen-

Financial History ~ Winter 2010 22 www.moaf.org tions was unusual for a time when state laws governed such relation- ships. However, a repeat of the boom- bust cycle in land would reappear in the 1830s, and the severe downturn at the end of that decade would lead to a national federal bankruptcy act in 1841. Other debtors facing demands from creditors and cut off from further accommodation by banks turned to their state legislatures for relief. Debt- ors typically asked states to intervene in contracts through stay laws that postponed the seizure and sale of property when the debtor signed a pledge to make payment at a certain future date and/or minimum appraisal laws that provided property could not be sold below a certain minimum price. That minimum was typically set by a group of neighbors. While the push for such relief legislation was felt most in the heavily indebted agricul- tural states of the West, some form of relief was passed in 11 states, includ- ing four eastern states, and passage was close in four additional states, all in the East. The national focus on debtors and debt relief that began with the Panic of

Museum of American Finance 1819 meant that some states stopped Nicholas Biddle, president of the Second Bank of the United States. putting debtors in prison. Many states also expanded the types of property ing, those in debt were increasingly sure on Congress to resolve the issue that were subject to seizure and sale pressed by creditors. As land prices intensified. for debt, including debtors’ tools and fell and the number of legal judgments Following much debate, the final dwellings including 40 or 50 acres of requiring repayment of debts grew, relief legislation for federal land pur- surrounding land. debtors began to seek relief. One chasers passed Congress early in 1821. In addition to concentrating atten- important group of debtors included The act allowed debtors to give back tion on the issue of debt relief, the those who had acquired federal land the proportion of the land yet to be wake of the Panic of 1819 also through what was a very liberal pur- paid for in exchange for a clear title brought the issue of poor relief to chasing system. The boom in western to what remained and forgave back the forefront of public awareness and land following the end of the War of interest. For those wanting to keep marked the beginning of a shift in the 1812 took advantage of the easy terms all their land, the act extended pay- way Americans viewed the poor and of the times. But as the economic crisis ment of the full debt to eight annual public responses to poverty. With the worsened, land prices plummeted and installments, without interest charges, experience of the Panic of 1819 fresh many land owners found themselves and gave a large discount to those in their minds, particularly its dra- unable to keep title. In spite of post- who would pay promptly. While Con- matic increase in the number of poor ponement acts by Congress in 1818, gress had enacted postponement laws seeking relief and the resulting rise 1819 and 1820 that extended forfei- frequently in the decade following in the cost of providing poor relief, ture in each case for an additional 1810, this level of federal government and with the continuing debates over year, the problem deepened, and pres- involvement into debtor-creditor rela- poor relief in Britain as a constant

www.moaf.org 23 Financial History ~ Winter 2010 reminder, a number of state and city these public efforts and allowed private history, the so-called “Tariff of Abom- governments began to search for ways capital markets to establish a claim to inations.” Rising sectional tensions to reform their approach. superiority over public enterprise. and the election of Andrew Jackson One of the guiding principles of With the onset of the depression began to turn the tide of protection these reform efforts was the concept following the Panic of 1819, the pro- and in 1832 a new tariff, designed to of “less-eligibility.” This meant that tectionist tariff movement was given a deal with rising southern discontent, someone on relief should not be better tremendous boost. Despite the found- cut the average duties of the 1828 tar- off than someone living on the wages ing of the American Society for the iff in half. Not satisfied by this action, he earned working. To achieve this Promotion of American Industry in southerners revolted with South Caro- required that the poor be categorized 1816 and its subsequent extension lina in the lead. The resulting Nullifica- by the source of their condition — those into state and local affiliated soci- tion Crisis tested the American politi- who were poor through no fault of eties, by 1818 the postwar boom cal system and created a critical their own and those who could only had reduced the movement to being precedent for democratic action. With blame themselves for their condition, almost dormant. However, the hard tariff acts in 1842 and 1846 the gen- temporary versus longer-term, able- times following the panic led Mathew eral trend was to further reduce rates, bodied versus disabled, etc. Once they Carey of Philadelphia to hold a well- and while tariffs remained an impor- had been categorized, control of the attended Convention of the Friends of tant political issue during the antebel- poor became an important goal. This, National Industry in lum period, they no longer played the in turn, led to efforts focused on late in 1819. This and a host of similar central role they did in the decade fol- limiting access to relief provided indi- meetings, particularly in New England lowing the Panic of 1819. FH viduals in their homes and to move and the Mid-Atlantic states, renewed towards providing relief in almshouses the vigor of the protectionist move- Clyde Haulman is Professor of Eco- or workhouses that would oversee the ment and created numerous appeals nomics at the College of William and poor, ensure their good behavior and to Congress. As a result, in 1820, Mary. He is the author of Virginia and reform the deviant. Congressman Baldwin of Pennsylva- the Panic of 1819 (2008, Chatto and As the United States moved into nia introduced a strongly protectionist Pickering). the 1830s and beyond, increasingly tariff bill. With solid support across Sources upper- and middle-class Americans much of the nation, the bill easily saw urban poverty as entrenched passed the House but fell short in the Rezneck, S. “The Depression of 1819- rather than a problem that could be Senate by one vote. 1822, A Social History,” American solved. This recognition of the evolv- Although failing to secure the pro- Historical Review, 39:1, 1933, pp. ing market revolution and changing tective tariff they sought in 1820, the 28–47. mode of production also meant that forces of protectionism were invigo- Rothbard, M. The Panic of 1819: Reac- many cities decreased relief programs rated. Led by Carey, Hezekiah Niles, tions and Policies. New York: Colum- as a percentage of their budgets, while editor of the influential Weekly Regis- bia University Press, 1962. funding for new police departments ter, Daniel Raymond, author of the Notes rose dramatically. Finally, as more first American book on , and more citizens began to see educa- and a number of others, the protec- 1 Benjamin Brand Papers (Mss B7332a tion as a solution to poverty, many tionists gained a substantial following 18–19), Virginia Historical Society.Let- states established publicly-funded, among the farmers in the middle Atlan- ter dated March 27, 1819, Marshall compulsory, non-sectarian schools. tic and western regions and New Eng- Papers, College of William and Mary. Nationally, many state efforts land manufacturers. By 1824, times 2 rezneck, “Depression of 1819–1822,” directed towards internal improve- were ripe for the protective legislation p. 29 quoting C.F. Adams, Memories of ments such as canals and turnpikes that had failed earlier. The tariff of John Quincy Adams (1875), 5, p. 128 were temporarily derailed by the Panic 1824 increased duties on many items and p. 31; Columbia Centinal, June 26, of 1819, and it created sufficient con- as the protectionists rejected ideas of 1819 and “Commercial Confidence,” cern at the federal level that by the individual self-interest and free mar- Boston Patriot, Sept. 6, 1819; Niles’ late 1820s much of the national effort kets, concepts battered by the experi- Register, Vol. 18, p. 387; William M. had been abandoned. While many ence of the Panic of 1819. With the Gouge, A Short History of Paper Money state programs were restarted with the election of John Quincy Adams in and Banking in the United States (Phila- return of better economic times, wide- 1824 protectionists were further delphia: 1833), Part II, p. 111. spread failures among these programs emboldened, and in 1828 succeeded in following the doomed enacting the highest tariff in American

Financial History ~ Winter 2010 24 www.moaf.org