STEPHEN GIRARD

Early American Entrepreneur, Financier, Banker and Businessman

By Clyde A. Haulman a Hamburg banker who previously had vessels, particularly the famous philoso- acted as an agent for Girard, indicated they pher ships — the Helvetius, Montesquieu, In the early phases of the War of 1812, would divide the unsubscribed $10 mil- Rousseau and Voltaire — Girard extended prospects for the new nation were not lion among themselves. Girard and Parish his trading empire to China and India, good. Despite several exceptional Ameri- together took $8 million and Astor took South America and the Caribbean, Russia can naval victories, the British were strik- $2 million. The terms of their offer were and, most profitably, Western Europe. ing at will in the Old Northwest and tight- slightly more advantageous to the govern- By the middle of the first decade of ening their naval blockade on the East ment than those of the initial proposal, the 19th century, Girard grew increas- Coast. Napoleon’s disastrous march into and once their offer became known, more ingly concerned about the viability of the Russia meant that additional British mili- than 100 investors agreed to take parts of American neutrality that enabled him and tary assets were likely to be available for the Girard-Parish commitment. When it other merchants to make enormous profits the American war. After a decade of fiscal all shook out, Girard had loaned the gov- in the European carrying trade. With the frugality with little expenditure on the ernment some $2.5 million, including his imposition of the Embargo Act at the end military and defense, the US government coverage of most of Parish’s portion. of 1807, Girard began taking steps to secure succeeded in getting a $10 million loan in Three circumstances combined to his European assets then spread among a March of 1812 — just as war loomed with enable Girard to play such a significant number of trading centers across the con- Britain. But it was clear that with no new role in saving the Treasury loan of 1813 tinent. Consolidating his wealth in London domestic taxes and, in spite of increased and, thereby, securing the war effort and using his British correspondent Baring duties, no significant revenue stream from federal government operations. First was Brothers and taking advantage of favorable customs as the blockade closed down his successful business enterprises that exchange rates, over the next four years trade, the war effort was in trouble. had placed him among the wealthiest Girard succeeded in securing his capital In March 1813, Secretary of the Treasury of American entrepreneurs in the first and returning it to the United States. Albert Gallatin, who had presented Con- decade of the 19th century. Second was In 1807, Girard sent a trusted employee gress with information about the state of the closing of the Bank of the United to begin consolidating his European the nation’s finances earlier in December, States. Third was a loophole in Pennsylva- assets. In 1810, he authorized David Par- requested an additional loan of $16 mil- nia banking legislation regarding private ish as his agent and soon sent two other lion. Given the risks lenders perceived, banks. Perceptively seeing opportunities Philadelphians to assist. Moving assets to when the books closed subscriptions fell and new directions for his business enter- London, while at times difficult and not well short of the total. With the federal prises, Girard acted decisively to enhance without risk, proceeded throughout the government facing a fiscal crisis, Gallatin his own position and wealth, as well as aid period 1808–1812. However, having sub- turned to a small group of leading busi- his adopted nation. stantial balances in London, even with a nessmen — what economic historian Don- Arriving in Philadelphia in June 1776, firm that Girard trusted as much as Baring ald R. Adams, Jr. called “undoubtedly the Girard, having achieved success in coastal Brothers, faced significant uncertainties as first real underwriters’ syndicate for the trading, quickly began the mercantile the continental war ebbed and flowed and purpose of marketing government stock.” operations that would grow dramati- economic and political relations between Meeting in Philadelphia on April 5 in cally over the next 30 years. Capitaliz- the United States and Great Britain con- response to the request for proposals to ing on the opportunities provided by the tinued to deteriorate. Thus, Girard sought cover any remaining portion of the loan, French entry into the Revolution and to move his wealth to the United States by Stephen Girard, the Philadelphia merchant his own industry and frugality, Girard purchasing goods for import to the United and banker; John Jacob Astor, a wealthy prospered and spread his networks more States, as well as by financial transfers in New Yorker; and David Parish, son of broadly. Aided by his expanding fleet of the form of purchases of US government

www.MoAF.org | Spring 2017 | FINANCIAL HISTORY 11 stocks or shares of the Bank of the United shares of the Bank of the United States. future borrowing on the horizon, the alter- States. Each of these faced significant Despite the dangers — a war with Britain natives of government stocks would likely uncertainty and risk. would mean additional borrowing by the fall in value, which they did. With time Goods shipped from the European con- government with possible adverse effects running out as efforts to obtain a charter tinent to the United States were subject to on stock prices while the failure of the for the Bank first in Pennsylvania and then capture by the British Navy, while British effort to re-charter the Bank could mean in New York failed, Girard was poised to goods shipped to the United States were significant losses to shareholders — Girard strike. Purchasing the Bank’s neoclassical in danger of violating bans on importa- proceeded with the purchases. In 1811, building and virtually all its furnishings on tion. In 1811, for example, Girard was able almost 60% of the assets returned to the May 9, 1812, just two months after the Bank to send four of his ships to the Baltic and United States were in the form of govern- ceased operations, Girard opened his own have them return to Philadelphia full of ment stock and Bank shares. banking operation nine days later. profitable cargos. That same year, Girard’s A second element critical to placing A third factor that enabled Girard to aid agent in London had used consolidated Girard in a leading role regarding the War the government in its 1813 loan was a loop- funds to purchase a cargo of British goods Loan of 1813 was the demise of the First hole in the 1810 Pennsylvania banking law to be shipped to Philadelphia in Girard’s Bank of the United States. Chartered in regarding private banks. Girard exploited ship, the Good Friends. 1791 for a 20-year period, the Bank had the gap to its fullest in opening The Bank Originally bound for Rio de Janeiro, grown into a true central bank controlling of Stephen Girard. Unable to conceive of Girard diverted the ship to Amelia Island, the notes issued by state banks, ensuring a any but a conglomeration of individuals then under Spanish control, believing that stable market for government bonds, and putting together the capital needed to the United States ban would soon be lifted lending to the government when needed. open a bank, the legislation specified only and the goods could be brought to Philadel- In addition, its multiple branches greatly that “any unincorporated association of phia. While the Good Friends was anchored facilitated the commercial functions of persons” was prohibited from creating a off Amelia Island, a coup occurred and the the emerging national economy. How- bank and undertaking banking functions. island came under United States control. ever, long standing opposition from Jef- Girard, as an individual, did not meet the With a letter from the commanding Gen- fersonian Republicans, ongoing questions standard of the prohibition. eral, the ship sailed for Philadelphia believ- of constitutionality, and opposition from Operating on the advice of two promi- ing all was well. Entering the Delaware state banking interests combined in 1811 nent Philadelphia lawyers, Jared Ingersoll River, the Good Friends was stopped by US to defeat efforts to re-charter the Bank. and Alexander J. Dallas, and with assets customs and charged with violating the ban Despite his strong Jeffersonian leanings, that placed him among the wealthiest if on importing British goods. While the ship Girard was a leading proponent of re-char- not the wealthiest American of the time, and cargo were soon released following a tering. He saw the wide spread impact of Girard’s Bank commenced operations on favorable court decision, Girard faced con- the Bank on government fiscal operations, May 18, 1812. In a letter to the Governor of tinued claims by the government that were was keenly aware of its stabilizing impact Pennsylvania on May 23, Girard informed finally settled in 1819 following lengthy on state banks, and, most importantly the state of his action. litigation. This clearly demonstrated the for him, saw how its system of branches Opening a private bank in the after- liability involved in moving assets from enhanced his mercantile operations. math of the closing of the Bank of the Britain in the form of goods. As the single largest holder of Bank United States was one thing, ensuring its Because of the risk and uncertainty of stock, Girard would have profited from the success was another. In the face of strong transferring his wealth as cargos, Girard as re-charter. However, he knew that his Bank opposition from existing banking interests early as 1808 began considering alternatives stock holdings were still quite valuable in Philadelphia and beyond, Girard’s skills and ultimately instructed Baring Brothers given that each share would recover $400 as an entrepreneur, negotiator, financier to purchase US government stocks and at the Bank’s closing and that with war and and manager would be tested. But, as with virtually all of his business ventures, Girard succeeded magnificently. Girard’s first moves included hiring a staff headed by George Simpson, Cashier of the now closed Bank of the United States, to direct operations of the new bank and to supervise the other employees. Beginning with capital stock of over $70,000, Girard quickly added additional assets to it port- folio and by year’s end the total stood at over $1.3 million. This placed The Bank of Stephen Girard at a level comparable to the largest chartered banks of the day. Although the Philadelphia chartered banks quickly refused to accept Girard’s Collection of the Museum of American Finance Bank’s notes for payment or deposit, this Sight draft signed by Stephen Girard, January 19, 1810. substantial capital position enabled his

12 FINANCIAL HISTORY | Spring 2017 | www.MoAF.org Stephen Girard was born in Bordeaux, France in 1750. He immigrated to Philadelphia in 1776 and died there in 1831. In addition to his mercantile and financial activities, Girard is remembered for his critical role during Philadelphia’s yellow fever epidemic of 1793 that killed some 10% of the city’s population. Girard managed the temporary hospital at Bush Hill and directly cared for many of the ill. His most lasting legacy was bequeathing the vast majority of his fortune to found Girard College, providing free education for

Library of Congress Philadelphia’s orphans. His gift continues to benefit Philadelphians to this day. Main building, Girard College, 1901.

bank to meet challenges in the form of agreement to accept Treasury notes with of transportation — navigation and rail- specie calls from several rival chartered interest accrued as if they were bank notes roads — and coal provided a model for banks. The calls were based on Trea- led Treasury to make Girard’s Bank a the investment bankers who would be sury drafts drawn on Girard’s Bank. He depository for federal reserves and place it so important for economic development immediately countered with specie calls on par with chartered banks. later in the 19th century. on those banks using their notes his insti- The process of getting Girard’s Bank By the time Girard died in 1831, he and tution had accumulated. Girard’s action established and accepted faced one more his bank had played a critical and unique quickly brought this form of opposition obstacle — the battle over unchartered role in transforming Philadelphia and the to an end. The strong capital position banks in the Pennsylvania legislature. nation at a pivotal time for the emerg- also instilled confidence in the stability of Attempts to outlaw private banks in the ing national economy and its financial Girard’s Bank among the business com- 1813 session passed both houses of the legis- system. munity. Further, unlike British and Euro- lature by one vote but failed when vetoed by pean merchant banks, Girard maintained the governor. Renewed efforts succeeded in Clyde Haulman is Professor Emeritus strict separation between his mercantile 1814 despite the governor’s veto, but when of Economics at the College of William enterprises and his banking operations, Girard’s name appeared on the list of illegal and Mary. He studies the Early National thus ensuring transparency and enhanc- institutions at the beginning of 1815, no economy, the development of American ing the bank’s reputation. enforcement actions were taken. Following economic thought, and is the author of Girard further solidified his banking a sharp exchange with the state’s banking Virginia and the Panic of 1819 (2008, institution by quickly establishing a net- authorities, Girard was removed from the Chatto and Pickering). work of correspondent banks in major cit- list. Here, the magnitude of Girard’s wealth ies, in inland Pennsylvania, and with Bar- and the stability and reputation of Girard Sources ing Brothers in London This was further and his Bank likely were critical. enhanced by establishing an arrangement Girard’s important contribution to the Adams Donald R., Jr. Finance and Enterprise in with the Trustees of the former Bank of success of the 1813 Treasury loan enhanced Early America: A Study of Stephen Girard’s the United States whereby in exchange for his standing as a patriot and a financial Bank 1812–1831. Philadelphia: University of maintaining their account with his bank it anchor for the nation. With his bank- Pennsylvania Press. 1978. would be the institution that received and ing institution established and accepted, Hehnen, Mark T. “Girard to the Rescue: Ste- deposited the Trustee’s payments as they Girard was poised to be an ongoing force phen Girard and the War Loan of February wound down the closed institution. in the financial world of the new nation. 8, 1813.” Stephen Girard Forgotten Patriot at Establishing relations with the Treasury His role in the specie suspension of 1814, www.forgottenpatriot.com. proved much more difficult. Despite Gall- his forceful advocacy for the Second Bank Holland, Brenna O’Rourke. Free Market Fam- atin’s promise in the 1812 negotiations that of the United States, his large ongoing role ily: Gender, Capitalism and the Life of Ste- he would recommend that banks hold- in Treasury financing and his allowing phen Girard. Ph.D. dissertation, Temple ing public deposits would accept Girard’s The Bank of Stephen Girard to serve a cen- University. 2014. Bank’s notes and they would not make tral reserve role for inland Pennsylvania Wilson, George. Stephen Girard: America’s unnecessary specie draws from each other, banks (thus enabling their notes to circu- First Tycoon. Conshohocken, Pennsylvania: this did not happen. It took until 1815 late at par in Philadelphia), put Girard at Combined Books. 1995. when in response to Treasury’s difficul- the forefront of financial sector develop- ties in transferring funds from Southern ments in Philadelphia and the nation for Wright, Robert E. The First Wall Street: Chest- banks to make payments in the Northeast two decades. Even more important was nut Street, Philadelphia, and the Birth of that the issue was resolved. Girard offered the critical part Girard played as market American Finance. Chicago and London: to use his correspondent relationships to capitalism began its transformation from University of Chicago Press. 2005. collect and credit Treasury notes to his a primarily mercantile focus to the indus- Wright, Robert E. and David J. Cowen. Finan- account in the Bank of South Carolina and trial capitalism that would dominate the cial Founding Fathers: The Men Who Made to credit an equal amount to the Treasury country and the world. His financing of America Rich. Chicago and London: Uni- in his Philadelphia bank. This and Girard’s private ventures particularly in the area versity of Chicago Press. 2006.

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