The Panic of 1819

IV PROPOSALS FOR NATIONAL
MONETARY EXPANSION

Since state banks were a state responsibility, the discussion of monetary remedies for the depression took place mainly on a state level. Some people, however, envisioned inconvertible paper currency on a national scale, and put forward proposals to that effect.

The simplest method of attaining a national inconvertible paper currency, given the existing situation, was a general suspension of specie payments, including suspension by the Bank of the United States. The bank’s inconvertible notes would then have been the basic national currency—a less radical course than the governmental creation of a new type of inconvertible paper. Some suggestions for this relatively moderate approach appeared. “A Mercantile Correspondent” advanced a cautious plan for a five-year suspension, with the bank to purchase one to two million of specie per annum, so that the bank would own five to ten million in specie at the end of five years, a sum which the writer deemed ample to resume payment.1 The writer advocated a quasi legal tender plan, through an enforced stay of execution should the creditor refuse to accept the notes. “Mercantile Correspondent” proposed a maximum limit of $35 million on outstanding sums of United States Bank notes, which would function as standard money. The other banks would need no statutory limitation, since each bank would be required to pay its obligations daily to every other bank, this interbank competition acting as a check on their respective issues.

Emergency suspension of specie payments by the bank was advocated by the highly influential Oliver Wolcott of Connecticut, formerly Secretary of the Treasury. Wolcott offered no detailed plan.2

Another writer more boldly advocated permanent abandonment of specie payments and use of the bank notes as standard currency.3 “One of the People—A Farmer” asserted that the credit of the bank and confidence in its notes depended on its capital and skill rather than on the quantity of its coin. A critic calling himself “Agricola” attacked this position, asserting that the credit of a bank is determined precisely by the quantity of its specie.4 Confidence in a bank, declared “Agricola” shrewdly, is dependent on public opinion concerning the amount of specie that the bank possesses. Specie, after all, was the means for banks to pay their debts. The writer decried excessive, and therefore depreciating, note issue. Banks, he stated, could not add to the national wealth or capital. Their sole legitimate object was to furnish facilities for exchange and to transfer money from one place to another.

One of the most detailed proposals for an inconvertible paper based on the existing Bank of the United States was put forward by “An Anti-Bullionist” in a pamphlet.5 The author attributed the crisis to the external drain of specie, particularly to the East Indies, which had caused a deficiency of the currency supply within the country. The solution was to substitute for specie a “well-regulated” paper money. This purely domestic money would enable development of the nation without danger from foreign competition or influence. Notable in “Anti-Bullionist’s” approach was his attempt to guard against excessive issue of the notes and subsequent depreciation. His goal was stability in the value of money; he pointed out that specie currency was subject to fluctuation, just as was paper. Moreover, fluctuations in the value of specie could not be regulated; they were dependent on export, real wages, product of mines, and world demand. An inconvertible paper, however, could be efficiently regulated by the government to maintain its uniformity. “Anti-Bullionist” proceeded to argue that the value of money should be constant and provide a stable standard for contracts. It is questionable, however, how much he wished to avoid excessive issue, since he also specifically called a depreciating currency a stimulus to industry, while identifying an appreciating currency with scarcity of money and stagnation of industry. One of the particularly desired effects of an increased money supply was to lower the rate of interest, estimated by the writer as currently 10 percent. A lowering would greatly increase wealth and prosperity. If his plan were not adopted, the writer could only see a future of ever-greater contractions by the banking system and ever-deeper distress.

The “Anti-Bullionist” therefore proposed that the Bank of the United States issue non-redeemable paper, with the notes of the state banks redeemable in the new notes. In contrast to England, where the central bank was not subject to any legal check on its issue, the bank’s notes would be limited by a certain ratio to a Treasury issue of inconvertible notes, bearing interest of 3 percent. In this elaborate plan, while the bank notes would be redeemable in Treasury notes or in specie at the bank’s option, because of their interest-bearing quality the Treasury notes would not be money and would not enter into circulation. The Treasury notes would also be redeemable, at the option of the Treasury, in specie or in the par value of 6 percent government bonds. Thus, the bank notes would have a roundabout if tenuous connection with specie and would supposedly be supported at par to specie.

The author, however, was not sure about the efficacy or desirability of the specie check, and advocated in addition a direct check on the bank’s issue, by a Board of Commissioners appointed by the federal government. The Board would engage in careful study of the foreign exchange market, and would require the bank to keep its note issue limited to that amount which would tend to preserve the average foreign exchange rate of the dollar at approximately par, never depreciating more than 5 percent below. In this way, the author proclaimed, in an early version of a specie exchange standard, that since the European currencies would be kept at par with specie, the American currency would also be kept at par, though not directly redeemable. The writer finally envisioned a Treasury note supply of $20 million supporting a total monetary circulation of $100 million at par value in foreign exchange.

The outstanding advocate of a national inconvertible paper money was unquestionably Thomas Law, one of the leading citizens of Washington.6 Law came from a remarkable English family. His father was a bishop, patron of the famous Dr. William Paley, and his brothers numbered two bishops, an M.P., and Edward Law, Lord Chief Justice of England. Thomas Law himself had been a topflight civil servant in India and had married a daughter of Martha Washington. He was a friend of the leading Washington figures, including John Quincy Adams, William Crawford, John C. Calhoun, and Albert Gallatin. Law had first propounded his plan years before the depression began, but the advent of the panic spurred him to truly zealous efforts on its behalf.7 His influence in Washington was such that despite the poor opinion held of his scheme by the editors of the leading semi-official National Intelligencer they gave him space to expound it in almost every issue.8 Law’s articles are to be found under various pseudonyms, the most prevalent being “Homo,” and others being “Parvus Homo,” “Philo Homo,” “H,” “Statisticus,” “Justinian,” and “Philanthropus.” He also carried on debates between his various pseudonyms on his monetary views.

Law criticized the Bank of the United States, which he considered an evil source of restriction on monetary expansion. He proposed to substitute a National Currency Board, to be appointed by the President and Congress.9 The board was to issue an inconvertible national paper currency, in denominations above one dollar, with mixed coins to be issued for small change. A daring feature of the plan was that the new notes were to be loaned in perpetuity, with no necessity for repayment of principal while the interest payments were maintained. The board would lend the notes in perpetuity to the state governments at an interest of 2½ to 4 percent, in proportion to their population, on condition that the states in turn lend them to individuals at 5 percent in perpetuity.

Law asserted that these notes would not be issued in unlimited amounts. Their supply would be limited by the maintenance of the interest rate at 5 percent. When the rate of interest for loans prevailing on the market fell below 5 percent, the board would cease issuing its notes, since no one would come to the government to borrow. In fact, Law believed that if the market rate of interest fell below 5 percent debtors to the government would borrow on the market on cheaper terms in order to repay their debt at 5 percent. In this way, there would presumably be a stabilizing of the money supply and of the rate of interest. One flaw in Law’s plan was that debtors to the government would hardly borrow at 4 percent to repay their debts, since they need never repay the principal in any case. Such generous terms could never be received from private lenders. Law’s limits, therefore, would have proved in practice to be virtually non-existent.

Law envisioned the loans of the board and state governments to consist of subscriptions to corporations for roads, canals, and bridges; purchase of government and private stocks, and private loans. The principal object of the plan, according to Law, was “for the community to have a sufficiency of the circulating medium, without fluctuations in value by excess or scarcity, and that the interest of money may be low.”10 Law pointed to England—his birth place—as a model of prosperity, because it had sufficient (and inconvertible) currency to keep its rate of interest low.11 Law asserted it undeniable that a certain quantity of money was necessary for current expenses.12 This included pocket money, money for purchase of raw materials and goods, and money to build factories. Law ignored the classical economic position that in the long run any quantity of money serves as well as any other. Instead he estimated that the minimum monetary requirement was $15 per capita, i.e., $150 million for the country’s 10 million population. In one sense, Law agreed with the “hard money” critics of the banking system that the banks caused ruin through first encouraging credit and investments, and then curtailing their loans and bankrupting their borrowers. His objection, however, was solely to the curtailment. What was needed, he concluded, were permanent loans at low interest, in order to increase productive capital and stimulate industry. Contrasting the National Currency with a system of bank notes, he declared that while banks issued promises to pay specie that they did not have, the board would issue notes on the “property of the nation,” notes which did not have to be redeemed. While bank notes could be refused by other banks and fall to a discount, this could not happen to the National Currency, which would be uniform and receivable everywhere, including payments to the government. Instead of curtailing the note issue because of specie drain, the board could rectify any deficiency of currency caused by such a drain.

It is doubtful if Law was actually concerned to have limits on excess currency, because to Law such excess was mainly hypothetical. He was actually concerned with providing “sufficiency” of currency. One of the features of his plan was that the board could never call in the currency, and, therefore, could never diminish the circulating medium. This contrasts to the banking system where banks may call in their notes at any time. The board could always increase the circulating medium if it desired, by lending more, or by buying stock (the latter proposal being a rudimentary forerunner of open-market operations). The fact that this was considered an important advantage by Law demonstrates his eagerness to increase the money supply. The sufficiency of circulation would promote all industry, and the “nation” rather than the banks would reap the profits from the loans. Furthermore, the interest rate (5 percent) would be lower than the existing rate, which Law estimated at about 6½ percent. In 1820, Law estimated the minimum currency needed at $100 million. Such an amount would more than double the circulating medium and approximately return the money supply to boom levels.13

With a lower rate of interest assumed to be an advantage for stimulating industry, Law did not discuss whether any limits needed to be set in lowering the interest rate. Indeed, he admitted that a 5 percent rate was chosen only for the purposes of expedience; that a 4 percent rate would be far better.14 To Law, it was self-evident that the rate of interest could be lowered by an increase in the quantity of money; for when the supply of any commodity increased, this decreased its “value.”15

To advance his plan,16 Law attributed the depression mainly to a deficiency of currency, which caused shopkeepers to lose their markets and mechanics to lose employment.17 Law also declared that his monetary expansion plan, not protective tariffs, was the proper cure for the distress of the manufacturers. To Law, domestic manufactures were distressed from

the want of money, for the home manufacturers cannot afford to sell on long credits. They must have quick returns to pay workmen. I know of manufactures which have stopped, not because they were undersold by foreign goods, but solely because they could not get money. Money is the means to pay workmen, to set up machinery.18

Protectionists had pointed out that small handicraft manufacturers were suffering less from the depression than the large manufacturers. To the protectionists, this was clear evidence that the more heavily capitalized manufactures suffered the most, and that therefore a protective tariff was needed for larger capital. To Law, on the other hand, the lesson was different:

When specie diminished, the banks curtail, and the large masses of money are . . . diminished; those therefore who have to purchase raw materials and to pay two or three hundred workmen every week, and who rely upon collecting large sums—first feel the want of money.19

Elaborating on the benefits from increased money, Law pointed to the great amount of internal improvements that could be effected with the new money. He decried the slow process of accumulating money for investment out of profits. After all, the benefit was derived simply from the money, so what difference would the origin of the money make? And it would be easy for the government to provide money, because the government “gives internal exchangeable value to anything it prefers.” All it need do, concluded Law, was spend five millions of newly issued currency per year on public works, and, in a pump-priming effect, “the money thrown into circulating would, in the course of a year, enable individuals to make a number of improvements also.”

Other advantages for his plan cited by Law: that national paper could not be affected by an external drain, that specie would be used to buy goods from abroad instead of “being locked up at home,” and that America would be insulated from the fluctuating fortunes of foreign gold and silver mines. Law also cited Hume to support the advantages for production of increases in the circulating medium.20

Law admitted, in answer to critics of inconvertible paper, that his paper might depreciate, but he asserted that this was of minor importance compared to the beneficial lowering of the interest rate and the activation of industry. To those who maintained that a nation could satisfy its monetary needs by importing specie, Law retorted that this could only happen through a favorable balance of trade, which “rarely happens” in any country, particularly a new country, which had “so many wants” that it could not develop a large favorable balance. Merchants, furthermore, always preferred importing goods, upon which they could make a profit, to importing specie.

Law’s preference for his plan over the existing banking system did not prevent him from preferring bank paper to specie. The imperative was to reverse the contraction of the money supply. Thus, he commended the various state legislatures for permitting banks to continue in operation without paying in specie.21 In fact, Law proposed as an alternative that the Bank of the United States convert its existing assets of seven million dollars of 5 percent government bonds into new non-interest bearing Treasury notes. The bank would then use these notes, with the advantage of not being acceptable abroad, as a base for a two or threefold expansion of credits.22 Law, however, far preferred his national paper plan to the existing system or to loan offices in the separate states.23

One of Law’s most interesting contributions was his attempt to grapple with the embarrassing fact that, toward the end of 1820, New York City experienced an abundance of money for lending, and had low interest rates. This phenomenon presented two difficulties for Law: it seemed to eliminate the need for Law’s planned reduction of the rate of interest, while, on the other hand, the fact that the depression still remained seemed to indicate that low interest was not the sovereign remedy. Law countered that the low interest rates in New York were purely temporary and the result of sudden remittances by foreigners—particularly from Spain, Portugal, and Naples—to take advantage of the high interest rates here, and especially, to obtain security for their funds during their domestic political convulsions, “which they may withdraw when quiet is restored.” This is an early example of a “hot money” analysis.24

Law upheld his plan against an alternative scheme put forward by Littleton Dennis Teackle of Queen Annes County, Maryland. Teackle wished to base his proposed national currency on the “solid and immovable value” of the nation’s real estate—the valuation to be made by a tribunal of lawyers, financiers, and commissioners.25 Law countered with the shrewd objection that it would be impossible to evaluate accurately all of the nation’s real estate. His major complaint was that Teackle envisioned the retirement of the notes in ten years, which would again cause severe monetary scarcity. The only remedy was a note issue maintained in perpetuity.26

A Boston writer attacked Law’s plan, chiefly basing his argument on a distinction between “fictitious currency” and “legitimate currency.” The latter consisted of idle capital of intrinsic value, or its representative. Thus, specie or bank notes backed by actual specie deposits or redeemable in specie were legitimate currency. Artificial currency was any currency not backed by specie.27

Another plan for a national note issue based on land was presented by an anonymous writer in Niles’ Register.28 He advocated a maximum note issue of $30 million. Notes would be redeemable in gold or silver after sixteen years. They would be loaned at 6 percent interest and preferably applied to the development of internal improvements. The notes would, of course, be receivable in all dues to the government. Bank notes would be redeemable in this new government paper, although the bank would also have the option of paying in specie. The writer did not advocate that the notes be made legal tender. These notes could not depreciate because they would be redeemable in public land, possessing “certain” and intrinsic value, while gold and silver would revert to their “true character” as articles of commerce. Under an inconvertible currency, the writer proclaimed, there would be an automatic balancing of foreign trade. If imports exceeded exports, then merchants could not obtain specie for export as they could under redeemable currency. Therefore, foreign exchange would rise above par, prices of imports would rise, and imports would diminish in favor of domestic purchases, while conversely, exports would be promoted by the relative fall in their prices. The burden on imports would spur the development of domestic manufactures. The writer was not content to assert a new equilibrium exchange rate—and a depreciated one at that—as his final conclusion; instead, he maintained that the balance of trade would swing to becoming favorable again and the exchange rate would revert back to par. He failed to realize, of course, that with the currency inconvertible, there would be no mechanism to assure a maintenance of the original par.

One monetary expansionist, “Agricola,” is interesting for his denunciation of state debtors’ relief laws, such as stay and appraisement, which he denounced as pure “quackery.”29 All that we really needed was money, he said. Let Congress, therefore, give the people a circulating medium for internal purposes. Although he signed himself “Agricola” from Ontario, New York, the writer conceded that he was also a merchant and manufacturer and claimed that the lack of circulating medium was oppressing the industrious and the middle classes.

One North Carolinian advocated inconvertible government paper while also proposing the abolition of incorporated state banking.30 Gold and silver were foreign commodities, he declared. Paper was the best medium, precisely because no intrinsic property was being employed as money. The writer estimated that the total United States revenue was $25 million, and that the first issue of government paper should also be $25 million. This limitation on issue would insure against depreciation of the paper. The issue of notes could be stopped by the government whenever they depreciated in relation to specie. Also, the government could call on holders of its bills to fund them by purchasing interest-bearing government bonds. The writer urged that the notes be first used to acquire mortgages on real estate. The government’s debt would then be offset by its mortgage assets. He envisioned a maximum issue of $50 million.

Another leading promoter of a national paper plan was the fabulous merchant and financier James Swan.31 Swan accepted all the arguments of the critics of banks against bank paper. Indeed, he went further than Law, asserting that banks should be forced to pay their obligations in the same way as private individuals, so that the over-speculative banks might pay the penalty for their errors. He believed the remedy to be a new type of paper money that would not only eliminate the deficiency of specie, but also “give new life to our sunken trade, nourish the agricultural industry, create commercial wealth, and even render gold and silver altogether useless.” The basis of this paper would be the approximately 800 million acres of public land owned by the United States government. Valued at its legal minimum sale price of two dollars per acre, the government owned the unalterable and undepreciable capital sum of $1.6 billion. On this capital, the government could certainly issue $150 million in notes, bearing a 3 percent interest. The government would lend its notes in individuals, to merchants on their inventories, and to proprietors on real estate mortgages. Since the loans were to be at 6 percent, and the notes would pay 3 percent to their holders, the effect was to charge a rate of 3 percent. The notes would be distributed to each state, in proportion to its population, and would be receivable at the Treasury and for state land sales and taxes. Based on a far greater amount of land capital than on scanty specie capital, they could not depreciate; indeed, asserted Swan, they would command a premium over specie, since they would bear a 3 percent interest, and since the Treasury would no longer receive specie. According to Swan, this unique interest-bearing feature of the new currency was its principal superiority to bank paper, which was not interest-bearing and “consequently [there was] no benefit in keeping it. Hence everyone sought to employ it, which caused a great rapidity in its circulation.” Swan did not even think that a legal tender provision would be necessary, since the public would eagerly welcome an interest-bearing currency.

Some plans for a national inconvertible paper were more modest than any of the aforementioned, and simply involved the issuance of a few million dollars in new Treasury notes, which would be loaned to the banks at 5 to 6 percent interest to ward off specie runs.32

Proposals for an inconvertible federal paper money only fleetingly reached the stage of Congressional consideration. One instance was the resolution, in late 1819, by Representative Charles C. Pinckney of South Carolina, for the establishment of a government paper money system. The New York American was outraged.33 Surely, it warned, Congress could not entertain such a proposition for a moment. It would inevitably banish specie from the country, depreciate the currency, greatly increase the cost of living, and defraud the honest debtor. The country, asserted the American, had sufficient specie in circulation and had succeeded in bringing prices down again “to their just level,” injuring in the deflationary process only the speculators on credit. Naturally, these speculators would like to return to the “system of fictitious values” built upon immense paper issues.

Although no direct action was taken on Pinckney’s proposals, more support was given in the House for a serious inquiry into the possibility of a government paper plan, and the House passed a resolution in July, 1819, requesting the Secretary of the Treasury to report measures “to procure and retain a sufficient quantity of gold and silver coin in the United States, or to supply a circulating medium, in place of specie.” The conservative press was shocked at this resolution, which formed the basis for Secretary Crawford’s famous Report on the Currency of the following year.34 One of the most bitter attacks was leveled by the fiery William Duane, publisher of the Jeffersonian Philadelphia Aurora, and a powerful figure in Pennsylvania politics. In an open letter to Langdon Cheves, president of the Bank of the United States, Duane, in his typically vitriolic style, charged that Congress was about to set up a new Continental currency, the object of which was to ensure the supremacy of the villainous Bank of the United States.35 Hezekiah Niles went so far as to suspect Crawford of secretly plotting the establishment of a paper system.36

Crawford’s Report was sent to the House the following February.37 It is true that he concluded against an inconvertible paper plan and that this ended any Congressional action on the subject. However, he did present a plan which he considered the best of any possible paper currency scheme. This plan has been unduly neglected by historians, for it presented many interesting facets and aroused considerable controversy in the contemporary press. Crawford, far from being a straightforward enemy of paper expansion, throughout his report found himself in a quandary on the paper money issue. He first stressed the disadvantages, and then the advantages, of a national inconvertible currency.38 On the one hand, he recognized that paper issues would drive specie out of the country and lead to a rapid depreciation in the value of the currency. On the other hand, he maintained that an increase of paper issues increased monetary demand for goods, and hence caused production to rise beyond the level it would attain under a purely specie currency. Therefore, the current sudden contraction of paper money not only sharply lowered prices and injured debtors but also hampered enterprise and production. He acknowledged that falling prices benefited the export market, but pointed out that they also depressed the prices of all non-exportable goods, such as land and houses. Crawford, in fact, far more sophisticated than Law or the other national currency advocates, recognized that falling prices were far worse for enterprise than simply low prices. Stated Crawford:

A manufacturer will not hazard his capital in producing articles, the price of which is rapidly declining. The merchant will abstain from purchases, under the apprehension of a further reduction in price, and of the difficulty of revending at a profit.

The advantage of paper money, then, was to stimulate production and enterprise, particularly in contrast to the wringer that the specie system was currently imposing on the economy.

The paper money plan outlined by Crawford was as follows: The government would issue Treasury notes and put them into circulation in exchange for specie or for government bonds (“stock”) at par. The holder would have the option of converting the notes into government bonds (“stock”) at any time. These bonds would be yielding a low rate of interest. The banks would be completely relieved of any obligation to pay their notes in specie; instead they would be obliged to redeem them in Treasury notes. As a check on banks, only the national currency would be receivable in payments to the government. Furthermore, the banks would be required to buy government bonds on the latter’s request.

Now, suggested Crawford, suppose the demand for money in the economy rose. This would push the market rate of interest above the rather low rate of interest set on government bonds. Individuals and banks would then exchange their government bonds for the national currency at government offices, and relend the money at the higher market value rate of interest. In this way, by issuing more currency as the demand increased, the market rate of interest would be driven down to the official rate on government bonds. Conversely, suppose that the demand for money fell. Then, the market rate of interest would fall below the rate of government bonds; holders of the paper currency would exchange it for government bonds in order to reap the higher interest return on bonds. The government would retire the currency handed in, the supply of money in circulation would fall, and the market rate of interest would rise to that on government bonds.

Crawford, by postulating a paper currency convertible into government bonds, expected that in this way the supply of currency would be automatically regulated so as to set the market rate of interest equal to the rate paid on government bonds. Further, the supply of currency would be regulated by the demand for it. Under this plan, Crawford believed that there could be no excessive issue of the money supply. If the issue of paper became excessive, the rate of interest on the market would fall, and, as we have seen, holders of paper would exchange it for government bonds, reducing the supply of paper in circulation. Thus, both the supply of currency and the rate of interest would be automatically regulated.

Crawford finally rejected his own plan, with considerable reluctance. He did it primarily because the record of governments showed that they could not be trusted with paper money, that they would inevitably abuse this power through excessive issues, and burden the economy with all the consequent evils of inflation and depreciation. His second reason was the location of the major monetary troubles in the South and West, which contributed a large part of the federal revenue through public land purchases, while the government spent most of its revenue in the East. As a result, there was a permanent drain of the currency from the West and South, a drain unjustly ascribed in those regions to the Bank of the United States, and this would continue whether the currency was specie or paper. So the regions with the greatest deficiency of currency could not be helped by a national paper. There was no alternative but to conclude that the national suffering must continue until property values and wages had fallen to where the banks would be able generally to resume specie payments.39

Crawford’s final rejection of a national paper scheme was no great inspiration to the hard money stalwarts, who resented his doctrinal concessions to inconvertible paper, and his proffered, if finally rejected, plan for a national currency. Thus, William Duane, of the Philadelphia Aurora, simply dismissed the plan as a “tissue of absurdities.”40 More interesting was the reaction of Thomas Ritchie, publisher of the important Richmond Enquirer, fountainhead of Virginia Jeffersonianism, laissez-faire, and hard money doctrine. Ritchie penned a very intelligent critique of the Crawford Report, including its sections on the causes of the crisis, in three articles in the Enquirer.41 Crawford admitted, began Ritchie, that no paper money could succeed unless protected from excessive issue to the same extent as specie, with the latter’s universality of use throughout the world. Ritchie maintained that only specie or paper convertible into specie could avoid depreciation. Specie-convertible paper was protected from excess issue because an external drain would “restore the equilibrium.” Crawford, on the other hand, suggested substituting for this specie convertibility a new type of convertibility—into funded government bonds. But in contrast to the relative stability of the value of specie, the universal medium, the value of government bonds fluctuated very rapidly. Their value, continued Ritchie, was affected by numerous factors: the prospects for profit; the quantity of bonds on the market; the status of the government debt; and the prospects of war or peace. Crawford, for example, admitted that in times of war or emergency, his proposed currency would collapse completely, whereas specie always rose in public esteem under crisis conditions.

Ritchie then turned to the automatic regulatory feature of the plan that had so recommended it to Crawford. First, Crawford had contended that an excessive paper issue would cause interest rates on the market to fall below the interest rates on government bonds, and thus impel holders of currency to convert their holding into bonds. But this argument assumed that the “rate of interest necessarily depends on the quantity and value of money in circulation.” This, asserted Ritchie, was clearly incorrect. In Ricardian fashion, he declared that the value of money and the rate of interest depended on different principles. The former was determined by the proportion between the “circulating medium and the quantum of exchanges.” The latter depended on the “real or supposed profit of capital; the profit of capital depends on the proportion between the quantity of capital and the demand for its profitable enjoyment.” A fourfold increase in the money supply, said Ritchie, would raise prices by four and reduce the value of money by one-fourth, but it would not affect the rate of interest. The amount of interest and the amount of principal on any transaction might increase fourfold, but this need not change the rate.

To the contention that the rate of interest depended upon, and moved inversely to, the quantity of money in circulation, Ritchie thus countered with a “real” theory of interest, and movements in the quantity of money affecting only prices; if they affected all prices equally, then it was clear that a ratio, such as the rate of interest, would not be altered. He deduced, therefore, that it was possible to have excessive currency in circulation, without an increase in the profits of capital, and hence without effecting a change in the rate of interest. On the other hand, the supply of currency might be deficient, while the interest rate was low, because a poor prospect for profit had diminished the demand for capital. Ritchie concluded that interest need not be low when money was excessive; in fact, it was possible for excessive currency and boom conditions to be accompanied by a quickening of the spirit of enterprise and an increase in the prospects for profit. In that case, the bonds “would be converted into currency to be employed in active enterprises.” Thus, Crawford’s scheme was likely to have an aggravating, rather than a stabilizing, effect on excessive currency, and to propel the currency to a great stage of depreciation. Indeed, Ritchie declared, this was exactly what had happened in the recent boom before the depression. People had borrowed at high interest from the banks in order to acquire depreciated bank notes. This forgoing of fixed interest return to obtain money was certainly likely to occur under the Crawford national currency plan.

Similar perversity, added Ritchie, would occur in bad times. When the currency was deficient and the prospects for profit low, market interest rates would also be low, and people would tend to convert their currency into government bonds, thus aggravating the deficiency of currency.

Ritchie was not content to stop at this point in his penetrating analysis of the Crawford paper plan. He added that advocates of the scheme might reply that the government could always keep watch on the fluctuations in the prices of government bonds, and that, instead of maintaining convertibility into bonds at par, it could continually change the rates of convertibility in accordance with the rates of interest. To this early version of a “compensated dollar,” Ritchie replied that the scheme was illusory. “A thing so variable as the real or supposed profits of capital, as variable as the value of funded stock (government bonds); things—dependent upon such a variety of causes, can never be defined with sufficient accuracy to answer the purposes of a standard.” This “standard” was always changing in value, being affected by changes in many factors; especially the supply of government bonds, and the supply of and the demand for capital. These changes would be too numerous and subtle to be detectable by the government. The best course was to leave gold and silver alone; they would have infinitely fewer fluctuations than these “paper thermometers.” Crawford’s plan was no better than all the other paper schemes and we must return to the use of specie, the universal medium, which ebbed and flowed from one country to another according to its excess or deficiency.

If Crawford’s doctrinal concessions to the inflationists angered the pure hard money advocates, his conclusion against paper and in favor of continuing deflation until convertibility was restored galled the inflationists. Thomas Law was moved to write a pamphlet specifically devoted to a critique of the Crawford Report.42 Law attacked the widespread phobia against depreciation of currency; admittedly paper issues had a tendency to depreciate, but they also activated industry. He praised the many state legislatures for permitting banks to operate without having to redeem in specie. Law did not actually attack Crawford’s paper proposal at length, but he took the occasions to present his own paper plan in detail.

James Madison, Ritchie’s fellow Virginian, was willing to concede the theoretical possibility of a regime of paper money rigidly limited by the government. He added, however, that in practice, when money depended on the discretion of government, it would be bound to depreciate. Madison declared:

It cannot be doubted that a paper currency rigidly limited in its quantity to purposes absolutely necessary, may be made equal and even superior in value to specie. But experience does not favor a reliance on such experiments. Whenever the paper has not been convertible into specie, and its quantity has depended on the policy of the government, a depreciation has been produced by an undue increase, or an apprehension of it.43

A general attack on paper money schemes was leveled by Hezekiah Niles. Niles hailed the opportunity brought by the depression to purge the country of speculation and excess bank paper, provided that paper money schemes did not interfere. Money would then rise to its legitimate value.44 As to the debt-burdened farmers, they deserve to reap the consequence of their imprudence.45 Niles further pointed out that widespread complaint of “scarcity of money” always arose after the country had been flooded with paper, and the result was a scarcity of genuine money.46 Hard-money pamphleteer “Seventy-Six” attacked the thesis of scarcity of money at length and added that anyone could purchase currency by selling his labor or his property. He also pointed out that “Whatever quantity of money exists . . . is used to the full; a greater or less quantity will simply lower or raise in exchange.”47

Monetary proposals did not loom large in the Congressional arena during the depression. In the spring of 1819, proposals for suspension of payment by the Bank of the United States developed into scattered demands for a special session of Congress, to compel the Bank of the United States to suspend payment. The National Intelligencer scoffed at these demands as holding up false hope for a remedy—a remedy which would only aggravate the monetary disease.48 The demands for a special session came to naught.

Another simple remedy was advanced to end the external specie drain: the prohibition of specie exports. A prominent advocate of this measure was Mordecai Manuel Noah, editor of the New York National Advocate. At the beginning of the panic, he stated simply that 1818 had seen a specie drain abroad of over $6 million, and that prohibition would end the drain and restore confidence in the banking system. Since almost all of the specie flowed to the East Indies, Noah proposed that each vessel to the East Indies be limited to a certain quota of trade, and that imports of East India goods be limited to the amount “required for general consumption.”49 Another writer, “Solon,” coupled prohibition with the suggestion that the banks end their haphazard clearing operations and cooperate by not calling on each other daily for specie. This would permit expansion of the circulating medium.50 The call for prohibition of specie exports was promptly challenged. “H,” writing in the National Intelligencer and reprinted and specifically endorsed by the New York Gazette,51 a very staid organ usually devoid of politics, charged that the proposal to prohibit export of specie was a “stale experiment . . . universally discredited by . . . every standard writer on political economy.” It would aggravate the evil of depression by spreading uneasiness among merchants. Furthermore, such a law would cause the “moneyed men to hoard every bit of gold and silver that they could obtain.” Stopping the East India trade would be quite harmful. The India trade provided “an immense advantage,” supplying us necessaries such as tea and sugar, and goods which we exported to Europe at a profit.52

“Virginian” compared the proposal for prohibiting the export of specie to Spain’s prohibition in the era when specie was its main article of wealth, after the mining discoveries in the new world.53 Specie would always be exchanged for “more essential articles” needed for use and would seek out those countries which furnished the best and cheapest supply. If the United States could compete, it would have no deficiency of specie, as “Piano E. Sano” expressed it. Specie, like every commodity, contains a self-regulating principle.54 A superfluity in one region sought a better exchange elsewhere. The specie drain was clearly caused by an excess of bank paper, which made part of the specie superfluous. He advocated as a remedy the strict enforcement of specie payments by the banks.

One writer relied primarily on Adam Smith for his attack on export prohibition.55 “Hamilton” quoted verbatim from Smith’s attack on the concept of scarcity of money, in which Smith had asserted that the so-called scarcity was simply a difficulty of borrowing or selling goods for money and the results of previous misjudgments and overtrading.56

The export of specie held no terrors also for those who were ready to establish an inconvertible paper system. Thus, “Anti-Bullionist” stated that with specie demonetized, there would be no reason at all to prohibit the profitable specie trade with the West Indies, since specie would simply be another commodity.57

A curious and unique argument against prohibition of specie export was delivered by “N.O.” in the New York Evening Post.58 He went to the opposite extreme and declared that the cause of the depression was an excess amount of specie, and therefore the remedy was to encourage the export of specie rather than prohibit. The author, however, failed to develop the reasoning behind his position.

In Congress there was considerable interest in the possibility of prohibiting the export of specie. Senator Talbot of Kentucky, chairman of the Senate Finance Committee, reported negatively on the question of prohibiting the export of coin. He cited history to demonstrate the impotence of all such legislative prohibitions, even under the most despotic governments. Talbot took this position despite the advocacy of export prohibition by Senator John Forsyth of Georgia, another member of the committee. Talbot declared that an unfavorable balance of trade would always cause a drain of specie. The best course, he concluded, was not to impose any such regulation but to let trade work itself without legislative restrictions.59 The cue had been given to the finance committee a month earlier by Secretary of the Treasury Crawford, in response to a House request for his opinion on this problem. Crawford contrasted such practices of the dark ages to the “progress of reason” and “the advancement of the science of political economy in the seventeenth and eighteenth centuries, and its immutable laws.”60 The flow of specie, stated Crawford, depends upon the general balance of trade, which had become unfavorable due to the expansion of bank notes and bank credit. No legislative interference was necessary, except to enforce the obligation of the banks to redeem their notes in specie on demand. Apart from the specie drain, another problem confronted the nation in this period—the disappearance of gold coin. This drain of gold resulted from the official American exchange rate between gold and silver undervaluing gold on the world market. Secretary Crawford and House committees, in 1819 and 1821, recommended a revaluation of gold to a ratio of approximately 15½ to 1 of silver, instead of 15 to 1. A House committee in 1821 reported that the United States had minted $6 million in gold but that practically none was being retained in this country.61

On March 3, 1819, Congress passed an act ending the legal tender quality for foreign gold coins. In November of that year, it failed to extend the legal tender quality as it had in the past. French and Spanish silver coins, however, continued to be legal tender. The act injured the Southwest, the major point of import for foreign gold coin. The General Assembly of Louisiana, led by David C. Ker, Speaker of the House, and Julien Pryches, President of the Senate, sent a resolution to the Senate in April, 1820, attacking the action for blocking a large flow of specie imports. The Assembly estimated that elimination of the legal tender provision, added to cutbacks in Mexican mining output due to the current revolution against Spain, had diminished the influx of specie into New Orleans by a half million dollars per year, which “flowing into circulation would have . . . diminished the general embarrassments under which our commerce labors.”62

One fleeting proposal was that Congress devalue the dollar to ninety-six cents. It was mentioned, though not identified further, by the astute New York writer “Senex,” who attacked such a proposal as injuring fixed income groups. Said “Senex”: “The stockholders, landowners and annuitants and all persons having fixed income, would suffer a diminution of income to the extent of 4 percent, while merchants, manufacturers, and traders would increase the prices of the articles in which they deal.”63

Surveying the state and national proposals, the expansionist argument ran as follows: the nation is suffering from a “scarcity of money”; the banks unaided are in no position to stop contracting or to expand currency; therefore the government should free the monetary system from the limitations of specie payment and permit expansion of inconvertible paper. The nation needed more currency, and government was the agency best able to provide it. Debtors would be relieved as the new notes were loaned to them and would be aided by the consequent price increases.

The expansionists also maintained that an increase in the money supply would bring about a low rate of interest—one of the essentials of prosperity. This view was grounded, of course, on an assumed inverse relation between the quantity of money and the rate of interest. In keeping with this view, some writers elaborated plans to stabilize simultaneously the interest rate and the quantity of money.

Restrictionists replied that the quantity of money determines its value, or purchasing power, and not the rate of interest. Interest rates were determined by prospects for profit on investments.

Restrictionists, on the other hand, averred that any increase in paper money would aggravate rather than cure the depression. Most of this group laid the basic cause of the depression to a monetary cycle of expansion and contraction. Not only would a present expansion renew the process but the inconvertible notes were bound to depreciate, wreaking further havoc and postponing recovery. The emission of inconvertible paper, therefore, would not really increase the effective money supply. The only cure for the depression from the monetary side was rigid enforcement of specie payment, permitting a return to thrift and a liquidation of unsound bank notes and business positions. This point of view was common to practically all the opponents of inconvertible paper. Some restrictionists added that bank notes were also excessive because they kept the price of American export staples too high for competition in world markets. Enforcement of specie payments and ensuing contraction were necessary to reduce export prices and revive the export trade. To this argument, some inflationists offered two ingenious objections. One was that higher domestic prices might indeed reduce exports in physical terms, that they would still increase the monetary value of exports. Another was that contraction would also cause a fall in the prices of non-exportable goods such as land and houses, and that a fall in such prices would not stimulate exports.

Confidence was another key point in dispute. The inflationists urged the equivalent of pump-priming, stressing that note emissions would restore confidence, thereby inducing money out of idle hoards and into credits and investments. As debtors were relieved, creditors would gain confidence, lend their money again, and recovery would ensue. To the restrictionists, on the other hand, confidence depended upon strict maintenance of specie payment. Strict specie payment would restore industry and economy and bring back confidence, drawing hoarded specie back into circulation. To the inflationist’s contention that new loans to debtors would bolster general confidence, some hard money writers countered that lack of confidence and hoarding were not caused by purely psychological factors, but rather by the objective lack of good security available. This could only be remedied by enforcing specie payment and liquidating unsound banking and credit positions. They also replied to advocates of an increased velocity of circulation that increased velocity of money would only further depreciate the paper currency.

The depreciation issue was, indeed, the main problem for the expansionists; it was the main burden of the opposition attack and the most difficult to answer. Some expansionists conceded that the notes might depreciate and that this would be troublesome, but upheld the far superior advantages of an increased money supply. Other advocates were much bolder and frankly hailed depreciation as a desirable development. Within each state, expansionists proclaimed the advantages accruing to that state from building up a state-wide “home” market. Money would be retained to circulate at home, increasing the rapidity of circulation of the notes. Interstate debtors would be paid in farm produce instead of money, and this would help develop the home market for the state’s farm produce.

Other expansionists, conversely, upheld as their ultimate goal the maintenance of a stable value of money. Instead of a vague policy of endless expansion, they hoped for a stabilization of money and prices after the current contraction had been offset. These writers reminded the specie advocates that specie also fluctuated in value. A truly stable money could only be obtained by a limited, regulated issue of inconvertible paper by the government. Some pursued the old will-o’-the-wisp of a money based in some way on the land values of the country. The notes, they alleged, would not depreciate because they would be backed by appraised public land holdings. The hard money writers countered this criticism of specie by admitting that while theoretically the government could issue and maintain a currency more stable than specie, in practice governments always tended to overissue paper.

Against the protectionist emphasis on higher tariffs as a cure for the depression, the inflationists argued that manufacturing was depressed, not from lack of markets but from lack of money. It was lack of money that prevented the manufacturer from buying raw materials, hiring workers and constructing plants.

In a sense, this clash of emphasis was a forerunner of the “Austrian” vs. the underconsumptionist theory of the crisis, both of which were to come to the fore in the depression of the 1930s. For the underconsumptionists stressed the cause of the crisis to be lack of consumer markets for products, while the Mises-Hayek theory blamed the crisis on a shortage of saved capital. In the panic of 1819, the protectionists stressed the lack of consumer markets abroad and the necessity for building up a market at home. The inflationists, on the other hand, stressed the shortage of money capital available to manufacturers as a cause of the crisis. Curiously, the policy prescriptions of the two groups were diametrically opposed rather than parallel. For the underconsumptionist of 1819 believed that consumption would be stimulated by tariffs, while the underconsumptionist of a later day urged monetary expansion as the remedy. On the other hand, the remedy proposed for the shortage of money capital was monetary inflation in 1819, encouragement of savings and thrift in the 1930s. The crucial difference seems to be that the inflationists of the early period saw monetary expansion primarily as a way of providing capital, whereas the inflationists of the twentieth century saw it as a means of stimulating consumption, increased investment following as a consequence.

The hard money forces denied that a scarcity of money existed. After all, money could always be purchased on the market. And if a scarcity of money did exist, it was a scarcity of genuine money—of specie—and this scarcity would continue until specie payments were fully restored.

With the economic argument conducted so often on so high a level, one might wonder why there were virtually no proposals for devaluating the dollar to account for the higher price levels in relation to specie. It must be remembered, however, that there were scarcely any advocates of such a course in Great Britain at this time—or even a hundred years later.

The debates over proposals for nationwide monetary expansion strengthen our previous conclusions on the absence of rigid geographical or class lines in the inflation controversies. Certainly the leading inflationist, Thomas Law, one of the most influential citizens of Washington, was the opposite of a poor agrarian.

______________

64“Mercantile Correspondent,” Washington (D.C.) National Intelligencer, December 30, 1819.

65Oliver Wolcott, Remarks on the Present State of Currency, Credit, Commerce, and National Industry (New York: Wiley Co., 1820).

66“One of the People—A Farmer,” Washington (D.C.) National Intelligencer, April 17, 1819. Also see “A Citizen,” Baltimore Telegraph, reprinted in the Richmond Enquirer, June 1, 1819.

67“Agricola,” in Washington (D.C.) National Intelligencer, April 21, 1819.

68“An Anti-Bullionist,” An Enquiry into the Causes of the Present Commercial Embarrassments in the United States with a Plan of Reform of the Circulating Medium (1819): 45ff.

69On Law see Allen C. Clark, Greenleaf and Law in the Federal City (Washington, D.C.: W.F. Roberts Co., 1901).

70Law stated that he had begun recommending his plan in 1812. “Justinian” (T. Law), Washington (D.C.) National Intelligencer, November 3, 1821.

71See the caustic comment of the editors on Law’s plan in the Washington (D.C.) National Intelligencer, May 19, 1819. Also see the vigorous attack on Law by William Duane in the Philadelphia Aurora, October 11, 1820.

72Ibid., May 12, 1819; City of Washington Gazette, May 12, 1819.

73“Justinian” (T. Law), Remarks on the Report of the Secretary of the Treasury (Wilmington: R. Porter Co., 1820), pp. 22–23.

74Law also cited Russia, where the Emperor had wisely established a National Currency Board to provide a new circulating medium for the development of agriculture and manufactures in Russia. “Justinian,” Remarks, p. 34. Emperor Peter III had established state banks issuing inconvertible paper in 1777, and bank issues expanded and depreciated until 1817. See Michael T. Florinsky, Russia (New York: Macmillan Co., 1953), vol. 1, p. 567; vol. 2, pp. 708ff

75“Justinian,” Remarks, passim.

76Ibid.

77Washington (D.C.) National Intelligencer, May 22, May 26, June 1, 1819. Law evoked the authority of Arthur Young and Sir Josiah Child in saying that low interest rates were the soul of commerce.

78Ibid., May 15, 1819.

79In early 1818, before the economic crisis had arrived, Law answered a critic who had advised that his paper money plan be held in reserve for emergency times, that it would surely succeed better in time of prosperity. Ibid., February 10, 1818.

80Ibid., April 24, 1819. Also April 22, May 1, 1819.

81Ibid., October 30, 1819.

82“Justinian,” Remarks, p. 30. This does not imply that Law was hostile to tariffs. Far from it. Indeed, Law fulminated against the competition of cheap Asian labor in the form of cotton goods and urged exclusion of these goods from the country. Washington (D.C.) National Intelligencer, June 1, 1819; City of Washington Gazette, May 12, 1818.

83“Justinian,” Remarks, p. 37.

84Ibid. The main evil of the banks was their requirement of specie payments for their notes. City of Washington Gazette, May 12, 1818.

85Washington (D.C.) National Intelligencer, May 19, 1819.

86Ibid., April 1, 1820.

87Ibid., November 28, 1820.

88Ibid., October 31, 1821.

89Ibid., November 3, 1821.

90Ibid., July 21, 1819. The writer was vague on whether 100 percent specie backing was necessary for legitimacy, or whether redeemability would suffice.

91(Anonymous), “The Circulating Medium,” Niles’ Weekly Register 15 (November 21, 1818): 220.

92“Agricola,” in Washington (D.C.) National Intelligencer, January 25, 1820.

93“An Independent Citizen of North Carolina,” in ibid., January 13, 1820. Also see “Hominus Amicus” from Baltimore, ibid., May 15, 1819.

94Swan was an adventurer and land speculator, who had participated in the Boston Tea Party, and later became an agent of the French Republic; he had lived in Boston, but the last two decades of his life he made headquarters in a French debtor’s prison from which he wrote this pamphlet. His plan was presented in his pamphlet, James Swan, An Address to the President, Senate, and House of Representatives of the United States (Boston: W.W. Clapp, 1819), pp. 1–24; Dorfman, Economic Mind, vol. 2, pp. 243–46, 310–12.

95“A Reader from North Carolina,”Washington (D.C.) National Intelligencer, August 11, 1819. Also ibid., February 11, 1819, and Wolcott, passim.

96New York American, December 15, 1819. Also see the criticism in the New York Daily Advertiser, January 17, 1820.

97New York Daily Advertiser, July 30, 1819.

98Philadelphia Aurora, August 19, 1819. Duane, by the way, was certainly an outstanding exception to the general “era of good feeling” and support of President Monroe. He fought Monroe’s re-election with great bitterness.

99Niles’ Weekly Register 16 (July 31, 1819).

100On February 24, 1820. Reports of the Secretary of the Treasury of the United States (Washington, 1837), vol. 2, pp. 481–525. Also reprinted in U.S. Congress, American State Papers: Finance 3, no. 582 (February 24, 1820): 494–515.

101Law, in fact, maintained that Crawford privately agreed with his monetary views. Clark, Greenleaf and Law, p. 320.

102on the necessity of continued diminution of circulation see Philadelphia Aurora, October 2, 1821.

103Philadelphia Aurora, October 11, 1820.

104“On Crawford‚s Currency Report,” Richmond Enquirer, March 21, 1820; March 28, 1820; April 7, 1820.

105“Justinian,” Remarks, p. 40.

106Madison to C.D. Williams, February 1820. James Madison, Writings, Gaillard Hunt, ed. (New York: G.P. Putnam’s Sons, 1910), vol. 9, pp. 26–27.

107Niles’ Weekly Register 15 (January 9, 1819): 364.

108Ibid., 17 (December 11, 1819): 227.

109Ibid., 16 (July 31, 1819): 320.

110“Seventy-Six,” Cause of and Cure for Hard Times (New York, 1819).

111Washington (D.C.) National Intelligencer, May 19, 1819. Also the Norfolk Herald, May 29, 1819.

112New York National Advocate, September 7, 1818. Also see “Solon,” Philadelphia United States Gazette, December 24, 1818. “Solon” attacked the East India trade on the familiar ground of imbalance and absence of possible reciprocity. Also see “Franklin,” Baltimore Federal Republican, July 23, 1819, “Hominius Amicus,” Washington (D.C.) National Intelligencer, May 15, 1819; Niles’ Weekly Register 15 (December 5, 1818): 241.

113“Solon,” New York Gazette, December 9, 1818.

114“H” in New York Gazette, December 10, 1818.

115These arguments were reminiscent of the ones used by the defenders of the East India trade in Britain in the seventeenth and eighteenth centuries.

116“A Virginian,” Washington (D.C.) National Intelligencer, January 16, 1819.

117“Piano E. Sano,” City of Washington Gazette, reprinted in the Boston New England Palladium, January 18, 1820.

118“Hamilton,” Philadelphia United States Gazette, December 9, 1818.

119Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), p. 406.

120“Anti-Bullionist,” Enquiry, p. 41.

121“N.O.” in New York Evening Post, February 6, 1819.

122U.S. Congress, American State Papers: Finance, 3, no. 549 (January 25, 1819): 3939ff.

123Crawford to Representative Eppes. Finance Committee, December 29, 1818. Annals of Congress, 15th Congress, 2d Session, pp. 181–84.

124Report of House Committee, U.S. Congress, American State Papers: Finance 3, no. 614 (February 2, 1821): 660.

125U.S. Congress, American State Papers: Finance 3, no. 591 (April 17, 1820): 530. Also see A. Barton Hepburn, A History of Currency in the United States (New York: Macmillan Co., 1915), pp. 46ff.

126“Senex,” New York Daily Advertiser, March 19, 1819.

• 1W.R. Scott found that early business crises in England—in the sixteenth and seventeenth centuries—were attributable to specific acts of government rather than to the complex economic causes that marked modern depressions. W.R. Scott, The Constitutions and Finance of English, Scottish, and Irish Joint-Stock Companies to 1720 (Cambridge, Mass.: Cambridge University Press, 1912), pp. 465–67.
• 2Very little work has been done on the Panic of 1819, either on its events or on contemporary opinion and policies. Samuel Rezneck’s pioneering article dealt largely with Niles’ Register and the protectionist controversy. William E. Folz’s unpublished dissertation was devoted mainly to a description of the events of the pre-Panic period, especially in the West. Thomas H. Greer’s useful article dealing with the Old Northwest overemphasized the traditional sectional and class version of debtors’ relief controversies, in which the West was considered to be almost exclusively in favor of debtors’ relief and the East opposed. Samuel Rezneck, “The Depression of 1819–1822: A Social History,” American Historical Review 49 (October 1933): 28–47; William E. Folz, “The Financial Crisis of 1819–A Study in Post-War Economic Readjustment” (unpublished Ph.D. dissertation, University of Illinois, 1935); Thomas H. Greer, “Economic and Social Effects of the Depression of 1819 in the Old Northwest,” Indiana Magazine of History 49 (September 1948): 227–43.
• 3The banks were largely note-issue institutions. The big-city banks were already using deposits, but there is little or no information about them.
• 4U.S. Congress, American State Papers: Finance 3, no. 559, January 26, 1819 (Washington, D.C.: Gales and Seaton, 1834), p. 398.
• 5U.S. Department of Commerce, Historical Statistics, p. 245.
• 6Clive Day, “The Early Development of the American Cotton Manufacture,” Quarterly Journal of Economics 39 (May 1925): 452.
• 7U.S. Congress, “Digest of Manufactures, Supplement,” American State Papers: Finance 4, no. 691 (Washington, D.C., 1834), p. 397ff. Also George Heberton Evans, Jr., Business Incorporations in the United States, 1800–1943 (New York: National Bureau of Economic Research, 1948), pp. 12–21.
• 8Allan G. Gruchy, Supervision and Control of Virginia State Banks (New York: D. Appleton-Century and Co., 1937), pp. 14–18, 48–56; Davis R. Dewey, State Banking Before the Civil War (Washington, D.C.: U.S. Government Printing Office, 1910).
• 9U.S. Comptroller of the Currency, Annual Report, 1876 (Washington, D.C.: U.S. Government Printing Office, 1876), p. xxxixff.; Albert Gallatin, Considerations on the Currency and Banking Systems of the United States (Philadelphia: Carey and Lea, 1831); and Boston, New England Palladium, July 27, 1819.
• 10Gallatin, Considerations on the Currency, p. 281; William M. Gouge, A Short History of Paper Money and Banking (New York: B. and S. Collins, 1835), pp. 61, 405ff.; U.S. Treasury Department, Reports of the Secretary of the Treasury of the United States (Washington, D.C., Blair and Rives, 1837), vol. 2, pp. 481–525.
• 11See also Dewey, State Banking, pp. 63–68; John Jay Knox, History of Banking in the United States (New York: B. Rhodes and Co., 1900), p. 445; for an account of small denomination paper, see J.T. Scharf and T. Westcott, History of Philadelphia, 1669–1884 (Philadelphia: L.H. Everts and Co., 1884), vol. 1, p. 581; for an account of West Virginia bank expansion, see Charles H. Ambler, Thomas Ritchie, A Study in Virginia Politics (Richmond, Va.: Bell Book and Stationery Co., 1913), pp. 66–67.
• 12Walter Buckingham Smith and Arthur H. Cole, Fluctuations in American Business, 1790–1860 (Cambridge, Mass.: Harvard University Press, 1935), pp. 146, 185; Anne Bezanson et al., Wholesale Prices in Philadelphia, 1784–1861 (Philadelphia: University of Pennsylvania Press, 1936), vol. 2, pp. 352–55, 409; Arthur H. Cole, Wholesale Commodity Prices in the United States, 1700–1861 (Cambridge, Mass.: Harvard University Press, 1938), vol. 1, p. 161.
• 13These are Treasury estimates for fiscal years ending September 30. U.S. Treasury Department, Bureau of Statistics, Monthly Summary of Imports and Exports for the Fiscal Year 1896 (Washington, D.C.: U.S. Government Printing Office, 1896), pp. 622–23. Official data on United States imports are not available before 1821.
• 14Timothy Pitkin, Statistical View of the Commerce of the United States of America, 3rd ed. (New Haven, Conn.: Durrie and Peck, 1835), p. 294; and Worthy P. Sterns, “The Beginning of American Financial Independence,” Journal of Political Economy 6 (1897–98): 191.
• 15Smith and Cole, Fluctuations, p. 147; Bezanson, Wholesale Prices, vol. 1, p. 353.
• 16Ray B. Westerfield, “Early History of American Auctions—A Chapter in Commercial History,” Connecticut Academy of Arts and Sciences, Transactions 13 (May 1920): 164–70; “Observer,” Review of Trade and Commerce of New York, 1815-to-Present (New York, 1820); J. Leander Bishop, A History of American Manufactures, 1608–1866 (Philadelphia: E. Young and Co., 1864), vol. 2, pp. 256ff.; New York Legislature, Assembly Documents, No. 10 (Albany, 1843), pp. 130ff.; Victor S. Clark, History of Manufactures in the United States, 1607–1860 (Washington, D.C.: Carnegie Institute, 1916), vol. 2, pp. 241ff.; Arthur H. Cole, The American Wool Manufacture (Cambridge, Mass.: Harvard University Press, 1926), vol. 1, pp. 156ff., 217; Horace Secrist, “The Anti-Auction Movement and the New York Workingmen’s Party of 1829,” Wisconsin Academy of Sciences, Arts, and Letters, Transactions 17, Part 1 (1914): 166.
• 17Bezanson, Wholesale Prices, vol. 1, p. 355.
• 18For an account of the difficulties of the cotton and woolen industry after the war, see Caroline F. Ware, The Early New England Cotton Manufacture (Boston: Houghton Mifflin Co., 1931), pp. 66, 126ff.; Bishop, A History, pp. 211ff., 236; “Reports of House Committee on Commerce and Manufactures,” U.S. Congress, American State Papers: Finance, vol. 3, pp. 32–35, 82ff., 103, 461; Cole, American Wool Manufacture, pp. 85, 144, 152ff.; Report of House Committee on Domestic Manufactures,” Pennsylvania Legislature, Journal of the House, 1818–20 (January 28, 1820): 413; and J.T. Scharf, History of Delaware (Philadelphia: L.J. Richards and Co., 1888), vol. 2, pp. 304ff.
• 19Day, Early Development, p. 452; Norman S. Buck, Development and Organization of Anglo-American Trade, 1800–1850 (New Haven, Conn.: Yale University Press, 1925), pp. 134–47. See also Evans, Business Incorporations, pp. 12–30; Ware, Early New England, pp. 56ff.
• 20Trade restrictions, however, had already reduced re-exports to $16 million by 1811, the immediate prewar year. Pitkin, Statistical View of Commerce, p. 35; U.S. Treasury, Monthly Summary; and Emory R. Johnson, et al., History of Domestic and Foreign Commerce of the United States (Washington, D.C.: Carnegie Institute, 1915), vol. 2, pp. 31ff. On exports from the principal cities, see Robert G. Albion, The Rise of the New York Port (New York: C. Scribner’s Sons, 1939), p. 390.
• 21Pitkin, Statistical View of Commerce, pp. 95–144.
• 22Cole, Wholesale Commodity Prices, p. 161; Pitkin, Statistical View of Commerce, pp. 108–15.
• 23William M. Gouge, Journal of Banking (Philadelphia: J. Van Court, 1842), pp. 346, 355.
• 24New note issue series by banks reached a heavy peak in 1815 and 1816 in New York and Pennsylvania. D.C. Wismer, Pennsylvania Descriptive List of Obsolete State Bank Notes, 1782–1866 (Fredericksburg, Md.: J.W. Stovell Printing Co., 1933); and idem, New York Descriptive List of Obsolete Paper Money (Fredericksburg, Md.: J.W. Stovell Printing Co., 1931).
• 25U.S. Congress, American State Papers: Finance 4, no. 705 (March 22, 1824): 759.
• 26Dewey, State Banking, pp. 6–21.
• 27For data, see Walter Buckingham Smith, Economic Aspects of the Second Bank of the United States (Cambridge, Mass.: Harvard University Press, 1953), p. 49. Also U.S. Comptroller of the Currency, Annual Report, 1876, p. 261; R.C.H. Catterall, The Second Bank of the United States (Chicago: University of Chicago Press, 1903), p. 501. Other assets of the Bank were $9.5 million in government bonds, $2.7 million due from state banks. Capital totaled $35 million.
• 28Folz, “Financial Crisis,” p. 164; Smith, Economic Aspects, pp. 105, 112; U.S. Congress, American State Papers: Finance 4, no. 705 (March 22, 1824): 523.
• 29A contemporary estimated the number of banks in 1818 at 500. “Philotheus,” Baltimore Federal Republican, July 9, 1819. Also Gouge, Journal, pp. 223–26; New York Legislature, Senate Journal, 1819 (January 26, 1819): 66–70.
• 30N.S.B. Gras, The Massachusetts First National Bank of Boston, 1784–1934 (Cambridge, Mass.: Harvard University Press, 1937), pp. 710–11.
• 31Knox, History of Banking, pp. 485–86.
• 32Gouge, Short History, pp. 166ff.
• 33Purchasers were only required to pay one-fourth of the total within forty days of purchase, and the penalty of forfeiture for failure to complete payment in five years was repeatedly postponed by Congress. U.S. Congress, The Public and General Statutes Passed by the Congress of the United States of America (Boston: Wells and Lilly, 1827), vols. 2 and 3, passim.
• 34See the data compiled from the records of the General Land Office, in Smith and Cole, Fluctuations, p. 185; and in Arthur H. Cole, “Cyclical and Seasonal Variations in the Sale of Public Lands, 1816–60,” Review of Economic Statistics 9 (January 1927): 42ff. Also Thomas P. Abernethy, The Formative Period in Alabama, 1815–28 (Montgomery, Ala.: Brown Printing Co., 1922), p. 50ff.; C.F. Emerick, The Credit System and the Public Domain (Vanderbilt, Tenn.: Southern History Society Publication No. 3, 1898); U.S. Congress, American State Papers: Finance 3, p. 10; and 4, pp. 859–61.
• 35On a building boom in New York City, see the comment by an influential merchant of the day, John Pintard, Letters to His Daughter, vol. 1: 1816–20 (New York: New York Historical Society, 1940), November 16, 1818, p. 154. Also New York Gazette, February 4, 1818. On a rental and property value boom in other states, U.S. Congress, Annals of Congress of the United States, 17th Congress, 1st Session (1821–22), March 12, 1822, pp. 1281–97; Washington (D.C.) National Intelligencer (July 24, 1819); Thomas Cushing, ed., History of Allegheny County, Pennsylvania (Chicago: A. Warner and Co., 1889), p. 547; William E. Connelley and E.M. Coulter, History of Kentucky (Chicago: American Historical Society, 1922), vol. 2, p. 593; Waldo F. Mitchell, “Indiana’s Growth, 1812–20,” Indiana Magazine of History 10 (December 1914): 385; Hattie M. Anderson, “Frontier Economic Problems in Missouri, 1815–28,” Missouri Historical Review 34 (October 1939): 48ff.; Dorothy B. Dorsey, “The Panic of 1819 in Missouri,” Missouri Historical Review 29 (January 1935): 79–80; Report of J.H. Brown at 1st Annual Meeting of Kentucky Bar Association, in William Graham Sumner, History of Banking in the United States (New York: Henry Holt and Co., 1896), p. 89; Charles H. Garnett, State Banks of Issue in Illinois (Urbana University of Illinois, 1898), p. 7; Pennsylvania Legislature, Journal of the Senate, 1819–21 (February 14, 1820): 311–37. On the rise in the price of slaves during the boom, John L. Conger, “South Carolina and Early Tariffs,” Mississippi Valley Historical Review 5 (March 1919): 415–25.
• 36U.S. Department of Commerce, Historical Statistics, pp. 169, 219–20.
• 37Taylor, Transportation Revolution, pp. 23, 336.
• 38Thomas S. Berry, Western Prices Before 1861 (Cambridge, Mass.: Harvard University Press, 1943), pp. 32, 45ff. On the heavy increase in costs of transporting convicts, see Pennsylvania Legislature, Journal of the Senate, 1820–21 (April 3, 1821): 816.
• 39U.S. Congress, House, Annual Report of the Commissioner of Navigation, 1901, 57th Congress, 1st Session, House Document No. 14, p. 585.
• 40Joseph E. Hedges, Commercial Banking and the Stock Market Before 1863 (Baltimore: Johns Hopkins University Press, 1938).
• 41U.S. Treasury, Monthly Summary; Cincinnati, Cincinnati Directory, 1819 (Cincinnati, Ohio, 1819), p. 52.
• 42Pitkin, Statistical View of Commerce, pp. 95–144; Smith, Economic Aspects, p. 280.
• 43Cole, Wholesale Commodity Prices, p. 161; Bezanson, Wholesale Prices, vol. 2, pp. 67–70. Also Smith, Economic Aspects, pp. 72–75; George Rogers Taylor, “Wholesale Commodity Prices at Charleston, South Carolina, 1796–1861,” Journal of Economic and Business History 4 (August 1932): 856–70.
• 44Taylor, Transportation Revolution, pp. 200–202.
• 45The order of magnitude of these earnings was approximately $3 million. See Pitkin, Statistical View of Commerce, p. 166.
• 46On the general attitude of hostility by the public as well as the banks toward attempts to redeem notes in specie, see Crawford, Report; Dewey, State Banking, pp. 73–79ff., 107ff.; Niles’ Weekly Register 13 (August 2, 1817): 357; 9 (February 7, 1817): 32; 14 (June 20, 1818): 281, 285; 14 (May 30, 1818): 225; New York Legislature, “Report on Committee on Currency,” Journal of the Assembly (February 24, 1818): 307–11; Knox, A History of Banking, p. 576. On an agreement by the banks of Philadelphia not to redeem balances against each other without delay, see Harry E. Miller, Banking Theories in the United States Before 1860 (Cambridge, Mass.: Harvard University Press, 1927), p. 215.
• 47Condy Raguet to David Ricardo, April 18, 1821, in David Ricardo, Minor Papers on the Currency Question, 1809–23, Jacob Hollander, ed. (Baltimore: The Johns Hopkins Press, 1932), pp. 199–201.
• 48On the silver premium, see Raguet Report, in Ricardo, Minor Papers, pp. 223–31; Smith, Economic Aspects, pp. 106, 123–24, 283, 286; James Flint, Letters from America, vol. 9, Early Western Travels, 1748–1846, Reuben G. Thwaites, ed. (Cleveland, Ohio: A.H. Clark Co., 1904–07), p. 136.
• 49Smith, Economic Aspects, p. 49.
• 50Ibid., pp. 40, 119, 286. Also see Catterall, Second Bank, p. 503.
• 51Gallatin, Considerations, pp. 45–51; Delaware General Assembly, Journal of the House of Representatives, 1819 (January 28): 104–06; New Hampshire Gazette, August 19, 1817; John J. Walsh, Early Banks in the District of Columbia, 1792–1818 (Washington, D.C.: Catholic University of America Press, 1940), pp. 49, 80, 82, 123ff., 168. Massachusetts banks, in contrast, were able to expand their note issues slightly from 1818–21; Gras, Massachusetts First National Bank, pp. 44–49. Also see Wismer, New York Descriptive List and Pennsylvania Descriptive List, passim.
• 52Folz, “Financial Crisis,” pp. 170–86; and Louis R. Harlan, “Public Career of William Berkeley Lewis,” Tennessee Historical Quarterly 7 (March 1948): 13; Sister M. Grace Madeleine, Monetary and Banking Theories of Jacksonian Democracy (Philadelphia: The Dolphin Press, 1943), p. 14.
• 53On business failures and debt judgments, Niles’ Weekly Register 16 (May 8, June 7, 1819): 179–80, 258–62; Richmond Enquirer, April 23, May 25, June 4, September 3, 1819; Philadelphia Poulson’s American Daily Advertiser, June 19, July 29, August 5, 1822. On the difficulties of domestic manufactures in the depression, Bishop, A History, vol. 2, 248–53, 256–63; Ware, Early New England, pp. 67–68; Cole, Wholesale Prices, vol. 1, pp. 147ff.; and Theodore G. Gronert, “Trade in the Blue-Grass Region, 1810–1820,” Mississippi Valley Historical Review 5 (1918): 313–23. On the failure of lead mines in the crisis, Ruby J. Swartzlow, “The Early History of Lead Mining in Missouri,” Missouri Historical Review 29 (January 1935): 114.
• 54Cole, Wholesale Prices, p. 161; Smith and Cole, Economic Fluctuations, p. 146; and Berry, Western Prices, pp. 71–74, 81–83; Arthur H. Cole, Wholesale Commodity Prices in the United States, 1700–1861 (Cambridge, Mass.: Harvard University Press, 1938), Supplement, pp. 182–91; Thomas S. Berry, “Wholesale Commodity Prices in the Ohio VaIley, 1816–60,” Review of Economic Statistics 17 (August 1935): 92; Taylor, “Wholesale Commodity Prices at Charleston;” Walter Buckingham Smith, “Wholesale Commodity Prices in the United States, 1795–1824,” Review of Economic Statistics 9 (October 1927): 181–83; Swartzlow, “Early History,” p. 201; Frederick W. Moore, “Fluctuations in Agricultural Prices and Wages in the South,” The South in the Building of the Nation (Richmond, Va.: Southern Historical Publishing Society, 1909), vol. 5, pp. 426–34. For the fall in the price of and return on slaves, Francis Corbin to James Madison, October 10, 1819, Massachusetts Historical Society, Proceedings 43 (January 1910): 261; Smith, Economic Aspects, pp. 78–79, 280. On the fall in rental and property values, see Clark, History, pp. 378–86; Richmond Enquirer, August 5, 1820; Connelley and Coulter, History, p. 599; Malcolm R. Eiselen, The Rise of Pennsylvania Protectionism (Philadelphia, 1932), pp. 44ff.
• 55Historical Statistics, pp. 245–48; Pitkin, Statistical View of Commerce, pp. 95–144; and James W. Livingood, The Philadelphia-Baltimore Trade Rivalry, 1780–1860 (Harrisburg: Pennsylvania Historical Commission, 1947), pp. 18–20, 89, 142.
• 56Historical Statistics, p. 248; Pitkin, Statistical View of Commerce, pp. 180–82.
• 57Historical Statistics, pp. 239–40, 245.
• 58Cole, Wholesale Prices, pp. 148, 165; Smith and Cole, Economic Fluctuations, p. 147; Bezanson, Wholesale Prices, p. 353.
• 59Smith and Cole, Economic Fluctuations, p. 185.
• 60One indication of the general decline in business activity was the considerable decline in total letters carried by the U.S. Post Office, a decline the more remarkable for interrupting a period of rapid secular growth, and despite continuing increase in the number of post offices and miles of post roads. Letters carried declined from a peak of 9.6 million in 1819 to 8.5 million in 1821. Wesley E. Rich, The History of the United States Post Office to the Year 1829 (Cambridge, Mass.: Harvard University Press, 1924), p. 183.
• 61Smith, Economic Aspects, p. 124.
• 62On whiskey as a medium of exchange in the crisis, see Alfred E. Lee, History of the City of Columbus (New York: Numsell and Co., 1892), vol. 1, pp. 368–69; on grain as a principal medium, see Greer, “Economic and Social Effects,” p. 232. On barter, see Charles F. Goss, Cincinnati, the Queen City, 1788–1912 (Chicago: S.J. Clarke Co., 1912), vol. 1, opp. 140ff.; Dorsey, “The Panic of 1819,” p. 85; J. Ray Cable, The Bank of the State of Missouri (New York: Columbia University Press, 1923), p. 24; James A. Kehl, Ill-Feeling in the Era of Good Feeling (Pittsburgh: University of Pittsburgh Press, 1956), p. 188.
• 63William Greene, “Thoughts on the Present Situation and Prospect of the Western Country, April 21, 1820,” in “A New Englander’s Impressions of Cincinnati in 1820—Letters by William Greene,” Rosamund R. Wulsin, ed., Bulletin of the Historical and Philosophical Society of Ohio 7 (April 1949): 116–22. Also Annals of Cleveland, 1818–20 (Cleveland: WPA in Ohio, 1938), vol. 1, pp. 398, 479, 539, 543, 569, 590, 629, 649; New York American, August 28, 1819; Harold E. Davis, “Economic Basis of Ohio Politics, 1820–40,” Ohio Archaeological and Historical Quarterly 67 (October 1938): 290, 309; Logan Esarey, History of Indiana (Indianapolis: B.F. Bowen and Co., 1918), vol. 1, pp. 280ff.
• 64The Panic of 1819 was America’s first great economic crisis and depression. For the first time in American history, there was a crisis of nationwide scope that could not simply and directly be attributed to specific dislocations and restrictions—such as a famine or wartime blockades. Neither could it be simply attributed to the machinations or blunders of one man or to one upsetting act of government, which could be cured by removing the offending cause. In such a way had the economic dislocations from 1808–15 been blamed on “Mr. Jefferson’s Embargo” or “Mr. Madison’s War.” In short, here was a crisis marked with strong hints of modern depressions; it appeared to come mysteriously from within the economic system itself. Without obvious reasons, processes of production and exchange went awry.
• 65The bulk of the work deals with the remedial proposals themselves, and the speculations, controversies, and policies arising from them. Arguments were especially prevalent over monetary proposals, debtors’ relief—often tied in with monetary schemes—and a protective tariff. At the start of the depression each of these problems was unsettled: the tariff question was not resolved; the monetary system was new and troublesome. But the depression greatly intensified these problems, and added new aspects, and made solutions more pressing.
• 66The monetary system of the country was not highly developed. The banks, outside of New England at least, were confined almost exclusively to the cities. Their methods tended to be lax; government control was negligible; and the fact that most banks, like other corporations of the period, had to gain their status by special legislative charter, invited speculative abuses through pressure on the legislature. The result was a lack of uniformity in dealing with banks within and between states. Until 1811, the existence of the First Bank of the United States had influenced the banks toward uniformity. The currency of the United States was on a bimetallic standard, but at the legal ratio of fifteen-to-one gold was undervalued, and the bulk of the specie in circulation was silver. Silver coins were largely foreign, particularly Spanish, augmented by coins minted in Great Britain, Portugal, and France.
• 67The monetary system of the country was not highly developed. The banks, outside of New England at least, were confined almost exclusively to the cities. Their methods tended to be lax; government control was negligible; and the fact that most banks, like other corporations of the period, had to gain their status by special legislative charter, invited speculative abuses through pressure on the legislature. The result was a lack of uniformity in dealing with banks within and between states. Until 1811, the existence of the First Bank of the United States had influenced the banks toward uniformity. The currency of the United States was on a bimetallic standard, but at the legal ratio of fifteen-to-one gold was undervalued, and the bulk of the specie in circulation was silver. Silver coins were largely foreign, particularly Spanish, augmented by coins minted in Great Britain, Portugal, and France.
• 68The War of 1812 and postwar developments forced the American economy to make many rapid and sudden adjustments. The Anglo-French Wars had long fostered the prosperity of American shipping and foreign trade. As the leading neutral we found our exports in great demand on both sides, and American ships took over trade denied to ships of belligerent nations. With the advent of the Embargo and the Non-Intercourse Acts, and then the war itself, however, our foreign trade was drastically curtailed. Foreign trade had reached a peak of $138 million in imports and $108 million in exports in 1807, and by 1814 had sunk to $13 million imports and $7 million exports. On the other hand, war conditions spurred the growth of domestic manufactures. Cotton and woolen textiles, those bellwethers of the Industrial Revolution, were the leaders in this development. These goods were formerly supplied by Great Britain, but the government now required them for war purposes. Domestic manufactures grew rapidly to fill this demand as well as to meet consumer needs no longer met by imports. Households expanded their production of textiles. Of far more lasting significance was the growth of textile factories, especially in New England, New York, and Pennsylvania. Thus, while only four new cotton factories were established during 1807, forty-three were established during 1814, and fifteen in 1815. Leading merchants, finding their capital idle in foreign trade, turned to invest in the newly profitable field of domestic manufactures. Some of these factories adopted the corporate form, hitherto largely confined to banks, insurance and bridge companies. The total number of new factories incorporated in the leading manufacturing states of Massachusetts, Connecticut, New York, New Jersey, and Maryland, averaged sixty-five a year from 1812 to 1815, compared with eight per annum before the war.
• 69The War of 1812 and postwar developments forced the American economy to make many rapid and sudden adjustments. The Anglo-French Wars had long fostered the prosperity of American shipping and foreign trade. As the leading neutral we found our exports in great demand on both sides, and American ships took over trade denied to ships of belligerent nations. With the advent of the Embargo and the Non-Intercourse Acts, and then the war itself, however, our foreign trade was drastically curtailed. Foreign trade had reached a peak of $138 million in imports and $108 million in exports in 1807, and by 1814 had sunk to $13 million imports and $7 million exports. On the other hand, war conditions spurred the growth of domestic manufactures. Cotton and woolen textiles, those bellwethers of the Industrial Revolution, were the leaders in this development. These goods were formerly supplied by Great Britain, but the government now required them for war purposes. Domestic manufactures grew rapidly to fill this demand as well as to meet consumer needs no longer met by imports. Households expanded their production of textiles. Of far more lasting significance was the growth of textile factories, especially in New England, New York, and Pennsylvania. Thus, while only four new cotton factories were established during 1807, forty-three were established during 1814, and fifteen in 1815. Leading merchants, finding their capital idle in foreign trade, turned to invest in the newly profitable field of domestic manufactures. Some of these factories adopted the corporate form, hitherto largely confined to banks, insurance and bridge companies. The total number of new factories incorporated in the leading manufacturing states of Massachusetts, Connecticut, New York, New Jersey, and Maryland, averaged sixty-five a year from 1812 to 1815, compared with eight per annum before the war.
• 70The War of 1812 and postwar developments forced the American economy to make many rapid and sudden adjustments. The Anglo-French Wars had long fostered the prosperity of American shipping and foreign trade. As the leading neutral we found our exports in great demand on both sides, and American ships took over trade denied to ships of belligerent nations. With the advent of the Embargo and the Non-Intercourse Acts, and then the war itself, however, our foreign trade was drastically curtailed. Foreign trade had reached a peak of $138 million in imports and $108 million in exports in 1807, and by 1814 had sunk to $13 million imports and $7 million exports. On the other hand, war conditions spurred the growth of domestic manufactures. Cotton and woolen textiles, those bellwethers of the Industrial Revolution, were the leaders in this development. These goods were formerly supplied by Great Britain, but the government now required them for war purposes. Domestic manufactures grew rapidly to fill this demand as well as to meet consumer needs no longer met by imports. Households expanded their production of textiles. Of far more lasting significance was the growth of textile factories, especially in New England, New York, and Pennsylvania. Thus, while only four new cotton factories were established during 1807, forty-three were established during 1814, and fifteen in 1815. Leading merchants, finding their capital idle in foreign trade, turned to invest in the newly profitable field of domestic manufactures. Some of these factories adopted the corporate form, hitherto largely confined to banks, insurance and bridge companies. The total number of new factories incorporated in the leading manufacturing states of Massachusetts, Connecticut, New York, New Jersey, and Maryland, averaged sixty-five a year from 1812 to 1815, compared with eight per annum before the war.
• 71The war wrought great changes in the monetary system as well. It brought heavy pressure for federal government borrowing. New England, where the banks were more conservative, was opposed to the war and loaned only negligible amounts to the government, and the federal government came to rely on the mushrooming banks in the other states. These banks were primarily note-issuing institutions, generally run on loose principles. Little specie was paid in as capital, and it was quite common for the stockholders to pay for their bank stock with their own promissory notes, using the stock itself as the only collateral. Usually, the officers and stockholders of the banks were the most favored borrowers in their own institutions. Contributing to the expansion of the note issue was the practice of printing notes in denominations as low as six cents. With the restraint of the Bank of the United States removed, and the needs of government finance heavy, the number of new banks and the quantity of note issue multiplied rapidly. The great expansion of bank notes outside of New England contrasted with the conservative policy of the New England banks, and led to a drain of specie from other states to New England. The relative conservatism of New England banks is revealed by the fact that Massachusetts bank notes outstanding increased but slowly—from $2.4 million to $2.7 million from 1811 to 1815. Furthermore, specie in the bank vaults increased from $1.5 million to $3.5 million in the same period.
• 72The war wrought great changes in the monetary system as well. It brought heavy pressure for federal government borrowing. New England, where the banks were more conservative, was opposed to the war and loaned only negligible amounts to the government, and the federal government came to rely on the mushrooming banks in the other states. These banks were primarily note-issuing institutions, generally run on loose principles. Little specie was paid in as capital, and it was quite common for the stockholders to pay for their bank stock with their own promissory notes, using the stock itself as the only collateral. Usually, the officers and stockholders of the banks were the most favored borrowers in their own institutions. Contributing to the expansion of the note issue was the practice of printing notes in denominations as low as six cents. With the restraint of the Bank of the United States removed, and the needs of government finance heavy, the number of new banks and the quantity of note issue multiplied rapidly. The great expansion of bank notes outside of New England contrasted with the conservative policy of the New England banks, and led to a drain of specie from other states to New England. The relative conservatism of New England banks is revealed by the fact that Massachusetts bank notes outstanding increased but slowly—from $2.4 million to $2.7 million from 1811 to 1815. Furthermore, specie in the bank vaults increased from $1.5 million to $3.5 million in the same period.
• 73There was no uniform currency except specie that could be used in all areas of the country. Furthermore, the government, borrowing Middle Atlantic, Southern, and Western bank notes, had to make heavy expenditures in the New England area for imported supplies and for newly burgeoning textile goods manufactured in that region. The resulting specie drain and the continuing bank note expansion led inevitably to a suspension of specie payments outside the New England area in August 1814. The government agreed to this suspension, and the banks continued in operation—the exchange rate of each bank’s notes varying widely. The notes of the suspended banks depreciated at varying rates with respect to the New England bank notes and to specie. The suspension of the obligation to redeem greatly spurred the establishment of new banks and the expansion of bank note issues. The number of banks in the United States rose from 88 in 1811 to 208 in 1815, while bank notes outstanding rose from $2.3 million to $4.6 million in the same period. Expansion was particularly large in the Middle Atlantic states, notably Pennsylvania. The number of banks in the Middle Atlantic states increased from 25 to 111 in this period, while banks in the southern and western states increased from 16 to 34. Pennsylvania incorporated 41 banks in the month of March, 1814.
• 74There was no uniform currency except specie that could be used in all areas of the country. Furthermore, the government, borrowing Middle Atlantic, Southern, and Western bank notes, had to make heavy expenditures in the New England area for imported supplies and for newly burgeoning textile goods manufactured in that region. The resulting specie drain and the continuing bank note expansion led inevitably to a suspension of specie payments outside the New England area in August 1814. The government agreed to this suspension, and the banks continued in operation—the exchange rate of each bank’s notes varying widely. The notes of the suspended banks depreciated at varying rates with respect to the New England bank notes and to specie. The suspension of the obligation to redeem greatly spurred the establishment of new banks and the expansion of bank note issues. The number of banks in the United States rose from 88 in 1811 to 208 in 1815, while bank notes outstanding rose from $2.3 million to $4.6 million in the same period. Expansion was particularly large in the Middle Atlantic states, notably Pennsylvania. The number of banks in the Middle Atlantic states increased from 25 to 111 in this period, while banks in the southern and western states increased from 16 to 34. Pennsylvania incorporated 41 banks in the month of March, 1814.
• 75The war also saw a great rise in prices. Prices of domestic goods rose under the impact of the rapid expansion of the money supply; prices of imported goods rose further as a result of the blocking of foreign trade. Domestic commodity prices rose by about 20–30 percent; cotton, the leading export staple, doubled in price. Imported commodity prices rose by about 70 percent.
• 76The first war of the new nation, therefore, wrought many unsettling changes in the American economy. Trade was blocked from its former channels, the monetary system became disordered, expansion of money and a shortage of imported goods drove prices upward, and domestic manufactures—particularly textiles—developed under the spur of government demand and the closing of foreign supply sources. The advent of peace brought its own set of problems. After the wartime shortages, the scramble for foreign trade was pursued in earnest. Americans were eager to buy foreign goods, particularly British textiles, and the British exporters were anxious to unload their accumulated stocks. Total imports rose from $5.3 million in the last prewar year to $113 million in 1815, and to $147 million in 1816. British exports to the United States alone totaled $59 million in 1815, and $43 million in 1816. The renewal of the supply of imported goods drastically lowered the prices of imports in the United States and spurred American demand. Imported commodity prices at Philadelphia, for example, fell in one month (March, 1815) from an index of 231 to 178. Import prices continued to sag afterwards, reaching 125 by early 1817.
• 77The first war of the new nation, therefore, wrought many unsettling changes in the American economy. Trade was blocked from its former channels, the monetary system became disordered, expansion of money and a shortage of imported goods drove prices upward, and domestic manufactures—particularly textiles—developed under the spur of government demand and the closing of foreign supply sources. The advent of peace brought its own set of problems. After the wartime shortages, the scramble for foreign trade was pursued in earnest. Americans were eager to buy foreign goods, particularly British textiles, and the British exporters were anxious to unload their accumulated stocks. Total imports rose from $5.3 million in the last prewar year to $113 million in 1815, and to $147 million in 1816. British exports to the United States alone totaled $59 million in 1815, and $43 million in 1816. The renewal of the supply of imported goods drastically lowered the prices of imports in the United States and spurred American demand. Imported commodity prices at Philadelphia, for example, fell in one month (March, 1815) from an index of 231 to 178. Import prices continued to sag afterwards, reaching 125 by early 1817.
• 78The first war of the new nation, therefore, wrought many unsettling changes in the American economy. Trade was blocked from its former channels, the monetary system became disordered, expansion of money and a shortage of imported goods drove prices upward, and domestic manufactures—particularly textiles—developed under the spur of government demand and the closing of foreign supply sources. The advent of peace brought its own set of problems. After the wartime shortages, the scramble for foreign trade was pursued in earnest. Americans were eager to buy foreign goods, particularly British textiles, and the British exporters were anxious to unload their accumulated stocks. Total imports rose from $5.3 million in the last prewar year to $113 million in 1815, and to $147 million in 1816. British exports to the United States alone totaled $59 million in 1815, and $43 million in 1816. The renewal of the supply of imported goods drastically lowered the prices of imports in the United States and spurred American demand. Imported commodity prices at Philadelphia, for example, fell in one month (March, 1815) from an index of 231 to 178. Import prices continued to sag afterwards, reaching 125 by early 1817.
• 79The ability and eagerness to import was increased by the continued inflation and credit expansion of the banks, which still were not obliged to redeem in specie. Furthermore, the federal government aided imports by allowing from several months to more than a year for payment of import duties. British and other foreign exporters were willing to grant short-term credits on a large scale to American importers, and these credits played a major role in meeting the large balance of trade deficit in the postwar years. A further spur to imports, again particularly in British textiles, was the emergence of a system of selling these goods at auction sales instead of through regular import channels. British manufacturers found that auction sales through agents yielded quicker returns; the lower prices were compensated by the lower costs of operation. The auction system flourished, particularly in New York City. Total auction sales in the United States during 1818 were $30 million. In New York City they totaled $14 million, in contrast to $5 million before the war. Half of these sales consisted of European dry goods, in contrast to a sale of $1 million of American-made dry goods.
• 80The influx of imports spelled trouble for war-grown manufactures, especially textiles, which suddenly had to face the onrush of foreign competition. The manufacturers did not share in the general postwar prosperity. Bezanson’s index of prices of industrial commodities at Philadelphia (including such products as dyes, chemicals, metals, textiles, sugar, soap, glass), which had increased from 141 to 214 during the war period, fell abruptly to 177 in March, 1815, and continued to fall, reaching 127 in March, 1817. This drop indicates the difficulties confronting the fledgling manufacturers. The households which had increased textile manufacturing during the war could easily suspend their work as imports resumed, but the new factories had invested capital at stake. A few of the up-to-date factories, such as the famous cotton textile firm of Waltham, Massachusetts—a pioneer in American mass production, using the new power loom to make plain white sheeting for lower income customers—could easily withstand the competition, but most factories were hard-pressed. The decline continued for several years; new factories incorporated in five leading manufacturing states averaged nine per annum from 1817–19, in contrast to sixty-four per annum in the war years.
• 81The influx of imports spelled trouble for war-grown manufactures, especially textiles, which suddenly had to face the onrush of foreign competition. The manufacturers did not share in the general postwar prosperity. Bezanson’s index of prices of industrial commodities at Philadelphia (including such products as dyes, chemicals, metals, textiles, sugar, soap, glass), which had increased from 141 to 214 during the war period, fell abruptly to 177 in March, 1815, and continued to fall, reaching 127 in March, 1817. This drop indicates the difficulties confronting the fledgling manufacturers. The households which had increased textile manufacturing during the war could easily suspend their work as imports resumed, but the new factories had invested capital at stake. A few of the up-to-date factories, such as the famous cotton textile firm of Waltham, Massachusetts—a pioneer in American mass production, using the new power loom to make plain white sheeting for lower income customers—could easily withstand the competition, but most factories were hard-pressed. The decline continued for several years; new factories incorporated in five leading manufacturing states averaged nine per annum from 1817–19, in contrast to sixty-four per annum in the war years.
• 82The influx of imports spelled trouble for war-grown manufactures, especially textiles, which suddenly had to face the onrush of foreign competition. The manufacturers did not share in the general postwar prosperity. Bezanson’s index of prices of industrial commodities at Philadelphia (including such products as dyes, chemicals, metals, textiles, sugar, soap, glass), which had increased from 141 to 214 during the war period, fell abruptly to 177 in March, 1815, and continued to fall, reaching 127 in March, 1817. This drop indicates the difficulties confronting the fledgling manufacturers. The households which had increased textile manufacturing during the war could easily suspend their work as imports resumed, but the new factories had invested capital at stake. A few of the up-to-date factories, such as the famous cotton textile firm of Waltham, Massachusetts—a pioneer in American mass production, using the new power loom to make plain white sheeting for lower income customers—could easily withstand the competition, but most factories were hard-pressed. The decline continued for several years; new factories incorporated in five leading manufacturing states averaged nine per annum from 1817–19, in contrast to sixty-four per annum in the war years.
• 83American exports continued to expand greatly, however, although by far less than imports. Europe’s hunger for agricultural staples was stimulated by poor postwar crops abroad, and the prices and values of American staples exported, notably cotton and tobacco, increased greatly. Such leading customers as Britain and France led the surge in European demand. In spite of this, exports never reached the peak prewar totals. Re-exports of foreign goods fared badly, never attaining more than one-third of their prewar level, when neutral ships of the United States had a virtual monopoly of the European carrying trade. Domestic exports totaled $46 million in the fiscal year 1815, and $65 million in 1816, compared to a prewar peak of $49 million. Re-exports, on the other hand, totaled $7 million in 1816, and $17 million the next year, compared to the prewar peak of $60 million. The net balance of foreign trade, in sum, was a deficit of $60 million for the fiscal year of 1815, and of $65 million for the fiscal year 1816. Agricultural produce accounted for $14 million of the $19 million increase in domestic exports from 1815 to 1816. Agricultural produce exported rose from $38 million in the fiscal year 1815 to $52 million in 1816. Cotton furnished about half of the agricultural exports, and tobacco, wheat, and flour formed the bulk of the remainder. Of the exports in 1815, cotton was $17.5 million, tobacco was $8 million, and wheat and flour exports totaled $7 million. In 1816, cotton increased to $24 million, and tobacco to $13 million.
• 84American exports continued to expand greatly, however, although by far less than imports. Europe’s hunger for agricultural staples was stimulated by poor postwar crops abroad, and the prices and values of American staples exported, notably cotton and tobacco, increased greatly. Such leading customers as Britain and France led the surge in European demand. In spite of this, exports never reached the peak prewar totals. Re-exports of foreign goods fared badly, never attaining more than one-third of their prewar level, when neutral ships of the United States had a virtual monopoly of the European carrying trade. Domestic exports totaled $46 million in the fiscal year 1815, and $65 million in 1816, compared to a prewar peak of $49 million. Re-exports, on the other hand, totaled $7 million in 1816, and $17 million the next year, compared to the prewar peak of $60 million. The net balance of foreign trade, in sum, was a deficit of $60 million for the fiscal year of 1815, and of $65 million for the fiscal year 1816. Agricultural produce accounted for $14 million of the $19 million increase in domestic exports from 1815 to 1816. Agricultural produce exported rose from $38 million in the fiscal year 1815 to $52 million in 1816. Cotton furnished about half of the agricultural exports, and tobacco, wheat, and flour formed the bulk of the remainder. Of the exports in 1815, cotton was $17.5 million, tobacco was $8 million, and wheat and flour exports totaled $7 million. In 1816, cotton increased to $24 million, and tobacco to $13 million.
• 85Prices of American exports increased as a result of increased European demand and monetary expansion at home. The boom in export values was largely a price and not a physical production phenomenon. Cole’s index of export prices at Charleston rose from 93 in March 1815, to 138 in March 1817, and cotton prices rose even more in the same period. The physical quantity of cotton produced and exported, on the other hand, increased slowly in these years.
• 86The postwar monetary situation was generally considered intolerable. Banks continued to expand in number and note issue, without the obligation of redeeming in specie, and their notes continued to depreciate and fluctuate from bank to bank, and from place to place. The number of banks increased from 208 to 246 during 1815 alone, while the estimated total of bank notes in circulation increased from $46 million to $68 million. There was a great desire for nationwide uniformity in the currency, and the Treasury chafed under the necessity of receiving depreciated bank notes from its sale of public lands in the West, while it had to spend the bulk of its funds in the East in far less depreciated money. It was clear, however, that the inflated banks could not return immediately to specie convertibility without an enormous contraction of credit and deflation of the money supply. As an attempted solution, a Second Bank of the United States was authorized by Congress. It was required to redeem its notes in specie, and was expected to provide a sound and uniform currency. It began operations in January, 1817, but the state banks agreed to resume specie payments by February 20, under the proviso that the new Bank discount by that date a minimum of $2 million in New York, $2 million in Philadelphia, $1.5 million in Baltimore, and $500 thousand in Virginia—a minimum of $6 million. The banks also extracted a pledge of support in emergencies. The Bank, indeed, was not averse to a credit expansion of its own. Its main office and southern and western branches soon overfulfilled their promises. It was run as a strictly profit-making enterprise, under very liberal rules. Like many of the state banks, the Second Bank of the United States accepted its second and later installments of capital in the form of IOUs instead of specie. Eventually, such stock loans totaled $10 million, and the loans were particularly heavy to the important Philadelphia and Baltimore officers and directors of the Bank. Control over the branches of the Bank was negligible, and the southern and western branches greatly expanded their credits and note issues. The officers of the Baltimore branch, indeed, engaged in outright embezzlement. By the beginning of 1818, the Bank had loaned over $41 million. Its note issue outstanding reached $10 million, and its demand deposits $13 million, for a total money issue of $23 million, contrasted to a specie reserve of about $2.5 million.
• 87The postwar monetary situation was generally considered intolerable. Banks continued to expand in number and note issue, without the obligation of redeeming in specie, and their notes continued to depreciate and fluctuate from bank to bank, and from place to place. The number of banks increased from 208 to 246 during 1815 alone, while the estimated total of bank notes in circulation increased from $46 million to $68 million. There was a great desire for nationwide uniformity in the currency, and the Treasury chafed under the necessity of receiving depreciated bank notes from its sale of public lands in the West, while it had to spend the bulk of its funds in the East in far less depreciated money. It was clear, however, that the inflated banks could not return immediately to specie convertibility without an enormous contraction of credit and deflation of the money supply. As an attempted solution, a Second Bank of the United States was authorized by Congress. It was required to redeem its notes in specie, and was expected to provide a sound and uniform currency. It began operations in January, 1817, but the state banks agreed to resume specie payments by February 20, under the proviso that the new Bank discount by that date a minimum of $2 million in New York, $2 million in Philadelphia, $1.5 million in Baltimore, and $500 thousand in Virginia—a minimum of $6 million. The banks also extracted a pledge of support in emergencies. The Bank, indeed, was not averse to a credit expansion of its own. Its main office and southern and western branches soon overfulfilled their promises. It was run as a strictly profit-making enterprise, under very liberal rules. Like many of the state banks, the Second Bank of the United States accepted its second and later installments of capital in the form of IOUs instead of specie. Eventually, such stock loans totaled $10 million, and the loans were particularly heavy to the important Philadelphia and Baltimore officers and directors of the Bank. Control over the branches of the Bank was negligible, and the southern and western branches greatly expanded their credits and note issues. The officers of the Baltimore branch, indeed, engaged in outright embezzlement. By the beginning of 1818, the Bank had loaned over $41 million. Its note issue outstanding reached $10 million, and its demand deposits $13 million, for a total money issue of $23 million, contrasted to a specie reserve of about $2.5 million.
• 88The postwar monetary situation was generally considered intolerable. Banks continued to expand in number and note issue, without the obligation of redeeming in specie, and their notes continued to depreciate and fluctuate from bank to bank, and from place to place. The number of banks increased from 208 to 246 during 1815 alone, while the estimated total of bank notes in circulation increased from $46 million to $68 million. There was a great desire for nationwide uniformity in the currency, and the Treasury chafed under the necessity of receiving depreciated bank notes from its sale of public lands in the West, while it had to spend the bulk of its funds in the East in far less depreciated money. It was clear, however, that the inflated banks could not return immediately to specie convertibility without an enormous contraction of credit and deflation of the money supply. As an attempted solution, a Second Bank of the United States was authorized by Congress. It was required to redeem its notes in specie, and was expected to provide a sound and uniform currency. It began operations in January, 1817, but the state banks agreed to resume specie payments by February 20, under the proviso that the new Bank discount by that date a minimum of $2 million in New York, $2 million in Philadelphia, $1.5 million in Baltimore, and $500 thousand in Virginia—a minimum of $6 million. The banks also extracted a pledge of support in emergencies. The Bank, indeed, was not averse to a credit expansion of its own. Its main office and southern and western branches soon overfulfilled their promises. It was run as a strictly profit-making enterprise, under very liberal rules. Like many of the state banks, the Second Bank of the United States accepted its second and later installments of capital in the form of IOUs instead of specie. Eventually, such stock loans totaled $10 million, and the loans were particularly heavy to the important Philadelphia and Baltimore officers and directors of the Bank. Control over the branches of the Bank was negligible, and the southern and western branches greatly expanded their credits and note issues. The officers of the Baltimore branch, indeed, engaged in outright embezzlement. By the beginning of 1818, the Bank had loaned over $41 million. Its note issue outstanding reached $10 million, and its demand deposits $13 million, for a total money issue of $23 million, contrasted to a specie reserve of about $2.5 million.
• 89The postwar monetary situation was generally considered intolerable. Banks continued to expand in number and note issue, without the obligation of redeeming in specie, and their notes continued to depreciate and fluctuate from bank to bank, and from place to place. The number of banks increased from 208 to 246 during 1815 alone, while the estimated total of bank notes in circulation increased from $46 million to $68 million. There was a great desire for nationwide uniformity in the currency, and the Treasury chafed under the necessity of receiving depreciated bank notes from its sale of public lands in the West, while it had to spend the bulk of its funds in the East in far less depreciated money. It was clear, however, that the inflated banks could not return immediately to specie convertibility without an enormous contraction of credit and deflation of the money supply. As an attempted solution, a Second Bank of the United States was authorized by Congress. It was required to redeem its notes in specie, and was expected to provide a sound and uniform currency. It began operations in January, 1817, but the state banks agreed to resume specie payments by February 20, under the proviso that the new Bank discount by that date a minimum of $2 million in New York, $2 million in Philadelphia, $1.5 million in Baltimore, and $500 thousand in Virginia—a minimum of $6 million. The banks also extracted a pledge of support in emergencies. The Bank, indeed, was not averse to a credit expansion of its own. Its main office and southern and western branches soon overfulfilled their promises. It was run as a strictly profit-making enterprise, under very liberal rules. Like many of the state banks, the Second Bank of the United States accepted its second and later installments of capital in the form of IOUs instead of specie. Eventually, such stock loans totaled $10 million, and the loans were particularly heavy to the important Philadelphia and Baltimore officers and directors of the Bank. Control over the branches of the Bank was negligible, and the southern and western branches greatly expanded their credits and note issues. The officers of the Baltimore branch, indeed, engaged in outright embezzlement. By the beginning of 1818, the Bank had loaned over $41 million. Its note issue outstanding reached $10 million, and its demand deposits $13 million, for a total money issue of $23 million, contrasted to a specie reserve of about $2.5 million.
• 90The postwar monetary situation was generally considered intolerable. Banks continued to expand in number and note issue, without the obligation of redeeming in specie, and their notes continued to depreciate and fluctuate from bank to bank, and from place to place. The number of banks increased from 208 to 246 during 1815 alone, while the estimated total of bank notes in circulation increased from $46 million to $68 million. There was a great desire for nationwide uniformity in the currency, and the Treasury chafed under the necessity of receiving depreciated bank notes from its sale of public lands in the West, while it had to spend the bulk of its funds in the East in far less depreciated money. It was clear, however, that the inflated banks could not return immediately to specie convertibility without an enormous contraction of credit and deflation of the money supply. As an attempted solution, a Second Bank of the United States was authorized by Congress. It was required to redeem its notes in specie, and was expected to provide a sound and uniform currency. It began operations in January, 1817, but the state banks agreed to resume specie payments by February 20, under the proviso that the new Bank discount by that date a minimum of $2 million in New York, $2 million in Philadelphia, $1.5 million in Baltimore, and $500 thousand in Virginia—a minimum of $6 million. The banks also extracted a pledge of support in emergencies. The Bank, indeed, was not averse to a credit expansion of its own. Its main office and southern and western branches soon overfulfilled their promises. It was run as a strictly profit-making enterprise, under very liberal rules. Like many of the state banks, the Second Bank of the United States accepted its second and later installments of capital in the form of IOUs instead of specie. Eventually, such stock loans totaled $10 million, and the loans were particularly heavy to the important Philadelphia and Baltimore officers and directors of the Bank. Control over the branches of the Bank was negligible, and the southern and western branches greatly expanded their credits and note issues. The officers of the Baltimore branch, indeed, engaged in outright embezzlement. By the beginning of 1818, the Bank had loaned over $41 million. Its note issue outstanding reached $10 million, and its demand deposits $13 million, for a total money issue of $23 million, contrasted to a specie reserve of about $2.5 million.
• 91The boom therefore continued in 1818, with the Bank of the United States acting as an expansionary, rather than as a limiting, force. The expansionist attitude of the Bank was encouraged by the Treasury, which wanted the Bank to accept and use the various state bank notes in which the Treasury received its revenue, particularly its receipts from public land sales. The expansion of its note issue encouraged the state banks throughout the country, especially outside New England, to multiply and continue their credit expansion. The number of banks had increased from 246 in 1816 to 392 in 1818. Kentucky alone chartered 40 new banks in the 1817–18 session. Bank expansion was spurred by the decision of the Bank of the United States and the Treasury to treat the notes of nominally resuming banks as actually equivalent to specie. The Bank thereby accumulated balances and notes against the private banks without presenting them for redemption. Many of these notes were original Treasury balances which had been deposited with the Bank but not claimed from the state banks. In New England, on the other hand, both the private banks and the branches of the Bank of the United States pursued a conservative policy. Indeed, they were forced to contract, as the New England branches of the Bank were continually forced to payout specie on the expanded note issue of the western and southern branches, since by prevailing Bank rule, all branches were liable for the notes of all other branches. As a result, the notes of the Massachusetts banks declined from a total of $1 million in June, 1815 to $850 thousand by June, 1818.
• 92The boom therefore continued in 1818, with the Bank of the United States acting as an expansionary, rather than as a limiting, force. The expansionist attitude of the Bank was encouraged by the Treasury, which wanted the Bank to accept and use the various state bank notes in which the Treasury received its revenue, particularly its receipts from public land sales. The expansion of its note issue encouraged the state banks throughout the country, especially outside New England, to multiply and continue their credit expansion. The number of banks had increased from 246 in 1816 to 392 in 1818. Kentucky alone chartered 40 new banks in the 1817–18 session. Bank expansion was spurred by the decision of the Bank of the United States and the Treasury to treat the notes of nominally resuming banks as actually equivalent to specie. The Bank thereby accumulated balances and notes against the private banks without presenting them for redemption. Many of these notes were original Treasury balances which had been deposited with the Bank but not claimed from the state banks. In New England, on the other hand, both the private banks and the branches of the Bank of the United States pursued a conservative policy. Indeed, they were forced to contract, as the New England branches of the Bank were continually forced to payout specie on the expanded note issue of the western and southern branches, since by prevailing Bank rule, all branches were liable for the notes of all other branches. As a result, the notes of the Massachusetts banks declined from a total of $1 million in June, 1815 to $850 thousand by June, 1818.
• 93The boom therefore continued in 1818, with the Bank of the United States acting as an expansionary, rather than as a limiting, force. The expansionist attitude of the Bank was encouraged by the Treasury, which wanted the Bank to accept and use the various state bank notes in which the Treasury received its revenue, particularly its receipts from public land sales. The expansion of its note issue encouraged the state banks throughout the country, especially outside New England, to multiply and continue their credit expansion. The number of banks had increased from 246 in 1816 to 392 in 1818. Kentucky alone chartered 40 new banks in the 1817–18 session. Bank expansion was spurred by the decision of the Bank of the United States and the Treasury to treat the notes of nominally resuming banks as actually equivalent to specie. The Bank thereby accumulated balances and notes against the private banks without presenting them for redemption. Many of these notes were original Treasury balances which had been deposited with the Bank but not claimed from the state banks. In New England, on the other hand, both the private banks and the branches of the Bank of the United States pursued a conservative policy. Indeed, they were forced to contract, as the New England branches of the Bank were continually forced to payout specie on the expanded note issue of the western and southern branches, since by prevailing Bank rule, all branches were liable for the notes of all other branches. As a result, the notes of the Massachusetts banks declined from a total of $1 million in June, 1815 to $850 thousand by June, 1818.
• 94A generally uniform currency prevailed throughout the country, most bank notes circulating at par. There were exceptions, however; during 1818, for example, notes of some banks in Pennsylvania were depreciated by as much as 30 percent, and in Virginia, Kentucky, and Tennessee by as much as 12 percent.
• 95A generally uniform currency prevailed throughout the country, most bank notes circulating at par. There were exceptions, however; during 1818, for example, notes of some banks in Pennsylvania were depreciated by as much as 30 percent, and in Virginia, Kentucky, and Tennessee by as much as 12 percent.
• 96Investment in real estate, turnpikes, and farm improvement projects spurted, and prices in these fields rose. Furthermore, the federal government facilitated large-scale speculation in public lands by opening up for sale large tracts in the Southwest and Northwest, and granting liberal credit terms to purchasers. Public land sales, which had averaged $2 million to $4 million per annum in 1815 and 1816, rose to a peak of $13.6 million in 1818.
• 97Investment in real estate, turnpikes, and farm improvement projects spurted, and prices in these fields rose. Furthermore, the federal government facilitated large-scale speculation in public lands by opening up for sale large tracts in the Southwest and Northwest, and granting liberal credit terms to purchasers. Public land sales, which had averaged $2 million to $4 million per annum in 1815 and 1816, rose to a peak of $13.6 million in 1818.
• 98Speculation in urban and rural lands and real estate, using bank credit, was a common phenomenon which sharply raised property values. Furthermore, this speculation increased Treasury balances in western banks, and added to the flow of the Bank’s notes from west to east. Federal construction expenditures also helped to further the boom: they rose from $700 thousand in 1816 to over $14 million in 1818. Beginning in 1816, there was a construction boom in turnpikes, especially in New York, Maryland, and western Pennsylvania. Turnpikes were built by corporations, each of which received special charters from the states, and corporations in turnpike construction rivaled new banks in number. The share of transportation in the boom is also demonstrated by high and rising freight rates on steamboats, which were just beginning operation. Shipbuilders also shared in the boom prosperity.
• 99Speculation in urban and rural lands and real estate, using bank credit, was a common phenomenon which sharply raised property values. Furthermore, this speculation increased Treasury balances in western banks, and added to the flow of the Bank’s notes from west to east. Federal construction expenditures also helped to further the boom: they rose from $700 thousand in 1816 to over $14 million in 1818. Beginning in 1816, there was a construction boom in turnpikes, especially in New York, Maryland, and western Pennsylvania. Turnpikes were built by corporations, each of which received special charters from the states, and corporations in turnpike construction rivaled new banks in number. The share of transportation in the boom is also demonstrated by high and rising freight rates on steamboats, which were just beginning operation. Shipbuilders also shared in the boom prosperity.
• 100Speculation in urban and rural lands and real estate, using bank credit, was a common phenomenon which sharply raised property values. Furthermore, this speculation increased Treasury balances in western banks, and added to the flow of the Bank’s notes from west to east. Federal construction expenditures also helped to further the boom: they rose from $700 thousand in 1816 to over $14 million in 1818. Beginning in 1816, there was a construction boom in turnpikes, especially in New York, Maryland, and western Pennsylvania. Turnpikes were built by corporations, each of which received special charters from the states, and corporations in turnpike construction rivaled new banks in number. The share of transportation in the boom is also demonstrated by high and rising freight rates on steamboats, which were just beginning operation. Shipbuilders also shared in the boom prosperity.
• 101Speculation in urban and rural lands and real estate, using bank credit, was a common phenomenon which sharply raised property values. Furthermore, this speculation increased Treasury balances in western banks, and added to the flow of the Bank’s notes from west to east. Federal construction expenditures also helped to further the boom: they rose from $700 thousand in 1816 to over $14 million in 1818. Beginning in 1816, there was a construction boom in turnpikes, especially in New York, Maryland, and western Pennsylvania. Turnpikes were built by corporations, each of which received special charters from the states, and corporations in turnpike construction rivaled new banks in number. The share of transportation in the boom is also demonstrated by high and rising freight rates on steamboats, which were just beginning operation. Shipbuilders also shared in the boom prosperity.
• 102Speculation in urban and rural lands and real estate, using bank credit, was a common phenomenon which sharply raised property values. Furthermore, this speculation increased Treasury balances in western banks, and added to the flow of the Bank’s notes from west to east. Federal construction expenditures also helped to further the boom: they rose from $700 thousand in 1816 to over $14 million in 1818. Beginning in 1816, there was a construction boom in turnpikes, especially in New York, Maryland, and western Pennsylvania. Turnpikes were built by corporations, each of which received special charters from the states, and corporations in turnpike construction rivaled new banks in number. The share of transportation in the boom is also demonstrated by high and rising freight rates on steamboats, which were just beginning operation. Shipbuilders also shared in the boom prosperity.
• 103It does not seem accidental that the boom period saw the establishment of the first formal indoor stock exchange in the country: the New York Stock Exchange opened in March, 1817. Traders had been buying and selling stocks on the curbs in Wall Street since the eighteenth century, but now they found it necessary to form a definite association and rent indoor quarters. The period also marked the beginning of investment banking: commercial banks and individual bankers bought blocks of stock and sold them in small lots on the market or sold the stocks as agents of the issuer. Prominent in this new business were former merchants in foreign trade who had accumulated capital, such as Alexander Brown and Sons, and persons with fortunes amassed elsewhere, such as Astor and Son.
• 104As a result of the monetary and credit expansion, imports continued at a high rate, exceeding the rising exports, and financed by specie outflow and by credits from foreign merchants. After the rush for imports in 1815 and 1816, import values, though remaining at a relatively high level, declined in 1817. This temporary decline from peak levels was spurred by the uncertainties surrounding the return of the banking system to specie payment in 1817, and the consequent relative slackening in monetary expansion during that period. However, imports increased sharply again in 1818 to $122 million. Imports of foreign goods into Cincinnati—the major western depot—doubled in 1817–18 over the 1815–16 totals. In contrast, prices of imported goods, determined largely by conditions outside America, remained almost constant during these years.
• 105Exports, helped by European prosperity and poor crops abroad, continued to rise in price and value. They rose to $88 million in 1817 and reached a peak of $93 million in 1818. Exports of domestic products also rose to a peak of $74 million in that year. Even reexports reached a postwar peak in 1818, although the increase over 1816 was negligible. Agricultural exports rose to $57 million in 1817 and to a peak of $63 million in 1818, advancing at a faster rate than domestic exports as a whole. Agricultural exports rose by $5 million in 1817 and $5.4 million in 1818, while aggregate domestic exports rose by $3.5 million and $5.6 million respectively. Cotton exports also reached a peak in the latter year. Prices of export staples rose even more rapidly during this period. Cole’s index of export staple prices at Charleston rose from 138 in March, 1817 to 169 in August, 1818. A similar rise occurred in Bezanson’s cotton index.
• 106Exports, helped by European prosperity and poor crops abroad, continued to rise in price and value. They rose to $88 million in 1817 and reached a peak of $93 million in 1818. Exports of domestic products also rose to a peak of $74 million in that year. Even reexports reached a postwar peak in 1818, although the increase over 1816 was negligible. Agricultural exports rose to $57 million in 1817 and to a peak of $63 million in 1818, advancing at a faster rate than domestic exports as a whole. Agricultural exports rose by $5 million in 1817 and $5.4 million in 1818, while aggregate domestic exports rose by $3.5 million and $5.6 million respectively. Cotton exports also reached a peak in the latter year. Prices of export staples rose even more rapidly during this period. Cole’s index of export staple prices at Charleston rose from 138 in March, 1817 to 169 in August, 1818. A similar rise occurred in Bezanson’s cotton index.
• 107The net result in the balance of trade was a sharp drop in the trade deficit to $11.6 million in 1817, and a later rise to $28.5 million in 1818. The large deficits of the postwar years are partly overstated, for some were offset by earnings of American shipping, which carried almost all American foreign trade—the earnings of which do not appear in the trade balance.
• 108The net result in the balance of trade was a sharp drop in the trade deficit to $11.6 million in 1817, and a later rise to $28.5 million in 1818. The large deficits of the postwar years are partly overstated, for some were offset by earnings of American shipping, which carried almost all American foreign trade—the earnings of which do not appear in the trade balance.
• 109Troubles and strains, however, began to pile up as the boom continued. The resumption of specie payments by the banks was increasingly more nominal than real. Obstacles and intimidation were the lot of those who attempted to press the banks for payment in specie. As the Philadelphia economist, merchant, and State Senator Condy Raguet wrote to Ricardo:
• 110You state in your letter that you find it difficult to comprehend, why persons who had a right to demand coin from the Banks in payment of their notes, so long forbore to exercise it. This no doubt appears paradoxical to one who resides in a country where an act of parliament was necessary to protect a bank, but the difficulty is easily solved. The whole of our population are either stockholders of banks or in debt to them. It is not the interest of the first to press the banks and the rest are afraid. This is the whole secret. An independent man, who was neither a stockholder or debtor, who would have ventured to compel the banks to do justice, would have been persecuted as an enemy of society.
• 111The consequent loss of confidence in the banks was demonstrated by the emergence of a premium for specie on the market. The discount on bank notes made it more difficult for the banks maintaining specie payment to retain specie in their vaults, since people could redeem their notes for specie, and sell it for bank notes at a discount. Specie came to be at a premium in terms of Bank of United States notes, even though the Bank was required to pay in specie. This reflected a lack of confidence in the Bank’s ability to continue specie payments. A premium on Spanish silver dollars—the major coin circulating in the United States—appeared in March, 1818, and reached 4 percent by June and 6 percent by November. The specie drain from the Bank vaults increased, adding to the heavy external drain for payment of imports. It became evident that the Bank could not long continue expanding its notes and paying out specie at such a rapid rate. Importations of specie from abroad by the Bank, totaling over $7 million and purchased at a heavy price, proved only a temporary expedient. The problem was aggravated by the pressure resulting from rapid repayment of the Federal debt. The autumn of 1818 and early 1819 were the scheduled dates for the repayment of the “Louisiana debt,” which had financed the Louisiana Purchase. Most of this debt—amounting to over $4 million—was owed abroad, and it had to be repaid in specie. The responsibility for meeting the payments fell on the Bank of the United States, the repository for the Treasury’s deposits.
• 112Faced with these threatening circumstances, the Bank of the United States was forced to call a halt to its expansion and launch a painful process of contraction. Beginning in the summer of 1818, the Bank precipitated the Panic of 1819 by a series of deflationary moves. The branches of the Bank were ordered to call on the state banks to redeem heavy balances and notes held by the Bank. The requirement that each branch redeem the notes of every other branch was rescinded, thus ending the liability of the conservative eastern branches to redeem the notes of expansionist branches. The Boston branch began this move in March, and it was made general for all the Bank’s offices by the end of August. The contractionist policy, begun hesitantly under the presidency of William Jones and continued more firmly under the direction of his successor Langdon Cheves, sharply limited and contracted the loans and note issues of the branches. As a result, total demand liabilities of the Bank, including notes, private and public deposits, declined precipitately from $22 million in the fall of 1818 to $12 million in January, 1819, and to $10 million by January, 1820. Of this amount, notes outstanding of the Bank fell from a peak of $10 million in early 1818, to $8.5 million in the fall of 1818, less than $5 million by the summer of 1819, and $3.6 million by January, 1820. Particularly striking was the decline in the Bank’s public deposits, consisting largely of bank debts accumulated from public land sales. They declined from $9 million in the autumn of 1818 to less than $3 million in January, 1819.
• 113Another result of contraction was a large rise in the Bank’s specie reserve, which had been about $2.5 million during 1818 and early 1819. As loans were recalled, and the specie drain reversed, specie flowed into the Bank and reached $3.4 million in January, 1820. Specie reserves spurted to $8 million in the spring of 1821, at a time when total demand liabilities of the Bank were less than $12 million.
• 114The contractionist policy forced the state banks, in debt to the Bank, to contract their loans and notes outstanding at a rapid pace. Total bank notes in circulation were estimated at $45 million in January, 1820, as compared to $68 million in 1816. The severe monetary contraction, lasting through 1820, led to a wave of bankruptcies throughout the country, particularly outside New England. In many cases, banks attempted to continue in operation while refusing specie payment, but their notes depreciated greatly and no longer circulated outside the vicinity of issue. The notes of most of the inland banks depreciated and fluctuated in relation to each other. New England, in contrast, was the only area little touched by bank failures or runs; the banks outside of Rhode Island remained solvent. The entire hastily built private credit structure was greatly shaken by the contraction and wave of defaults. The financial panic led, as did later panics, to a great scramble for a cash position, and an eagerness to sell stocks of goods at even sacrifice rates.
• 115The contractionist policy forced the state banks, in debt to the Bank, to contract their loans and notes outstanding at a rapid pace. Total bank notes in circulation were estimated at $45 million in January, 1820, as compared to $68 million in 1816. The severe monetary contraction, lasting through 1820, led to a wave of bankruptcies throughout the country, particularly outside New England. In many cases, banks attempted to continue in operation while refusing specie payment, but their notes depreciated greatly and no longer circulated outside the vicinity of issue. The notes of most of the inland banks depreciated and fluctuated in relation to each other. New England, in contrast, was the only area little touched by bank failures or runs; the banks outside of Rhode Island remained solvent. The entire hastily built private credit structure was greatly shaken by the contraction and wave of defaults. The financial panic led, as did later panics, to a great scramble for a cash position, and an eagerness to sell stocks of goods at even sacrifice rates.
• 116The contractionist policy forced the state banks, in debt to the Bank, to contract their loans and notes outstanding at a rapid pace. Total bank notes in circulation were estimated at $45 million in January, 1820, as compared to $68 million in 1816. The severe monetary contraction, lasting through 1820, led to a wave of bankruptcies throughout the country, particularly outside New England. In many cases, banks attempted to continue in operation while refusing specie payment, but their notes depreciated greatly and no longer circulated outside the vicinity of issue. The notes of most of the inland banks depreciated and fluctuated in relation to each other. New England, in contrast, was the only area little touched by bank failures or runs; the banks outside of Rhode Island remained solvent. The entire hastily built private credit structure was greatly shaken by the contraction and wave of defaults. The financial panic led, as did later panics, to a great scramble for a cash position, and an eagerness to sell stocks of goods at even sacrifice rates.
• 117The severe contraction of the money supply, added to an increased demand for liquidity, led to a rapid and very heavy drop in prices. Although detailed price information is available only for wholesale commodities, there is evidence that prices fell in many other fields, such as real estate values and rents. Most important for the American economy were the prices of the great export staples, and their fall was remarkably precipitate. The index of export staples fell from 169 in August 1818, and 158 in November, 1818, to 77 in June, 1819. A similar movement occurred in the price of cotton and in the Smith and Cole index of domestic commodity prices. Evidence of falling prices can be seen in freight rates and in the prices of slaves.
• 118The fall in export prices was aggravated by a fall in European demand for agricultural imports, occasioned by the abundant European crops after 1817 and the crisis and business contraction in Britain during the same period. Values of American exports declined sharply as well. Total exports fell from $93 million in 1818 to $70 million in 1819 and 1820. Re-exports did not contract, and the brunt was taken by domestic exports, which fell from $74 million to $51 million. Of this drop, $20 million was accounted for by agricultural exports ($10 million by cotton and $7 million by wheat and flour). It was a pure price decline, since the physical volume of exports continued to increase steadily during this period.
• 119Imports fell even more in value than did exports, reflecting the decline in American incomes. Total imports fell drastically from $122 million in 1818 to $87 million in 1819 and $74.5 million in 1820, thus practically ending the specie drain. Imports from Great Britain fell from $42 million in 1818 to $14 million in 1820, and cotton and woolen imports from Britain fell from over $14 million each in 1818 to about $5 million.
• 120During 1821, total exports and total imports are listed as almost identical, $54.6 million for the former and $54.5 million for the latter. Both were absolute low points, not only for the period of boom and depression but for America since 1815. Import prices also fell with the advent of economic contraction abroad. They fell only slightly, however, and were a negligible factor in the reduction of import values, as compared to the decrease in money income at home. The index of import prices at Philadelphia fell from 126 to 112 from November, 1818 to July, 1819.
• 121During 1821, total exports and total imports are listed as almost identical, $54.6 million for the former and $54.5 million for the latter. Both were absolute low points, not only for the period of boom and depression but for America since 1815. Import prices also fell with the advent of economic contraction abroad. They fell only slightly, however, and were a negligible factor in the reduction of import values, as compared to the decrease in money income at home. The index of import prices at Philadelphia fell from 126 to 112 from November, 1818 to July, 1819.
• 122The credit contraction also caused public land sales to drop sharply, falling from $13.6 million in 1818, to $1.7 million in 1820, and to $1.3 million in 1821. Added to a quickened general desire for a cash position, it also led to high interest rates and common complaint about the scarcity of loanable funds.
• 123Economic distress was suffered by all groups in the community. The great fall in prices heavily increased the burden of fixed money debts, and provided a great impetus toward debtor insolvency. The distress of the farmers, occasioned by the fall in agricultural and real estate prices, was aggravated by the mass of private and bank debts that they had contracted during the boom period. Borrowing for long-term improvements, farmers had been served by the new and greatly expanded banks of the South and West, as well as by the western branches of the Bank of the United States. Bank stockholders who had borrowed on the basis of unpaid stock found themselves forced to meet their debts. Speculators and others who had bought public lands during the boom were now confronted with heavy debt burdens. Merchants suffered from the decline in prices and demand for their produce and from heavy debts. Their debts to the British as well as to domestic creditors were often canceled by the ruthless process of bankruptcy. Niles judged that no less than $100 million of mercantile debts to Europe were eliminated by bankruptcy during the depression. So low were prices and so scarce was the monetary medium in the frontier areas that there was a considerable return to barter conditions among farmers and other local inhabitants. Various areas returned to barter or the use of such goods as grain and whiskey as media of exchange.
• 124Economic distress was suffered by all groups in the community. The great fall in prices heavily increased the burden of fixed money debts, and provided a great impetus toward debtor insolvency. The distress of the farmers, occasioned by the fall in agricultural and real estate prices, was aggravated by the mass of private and bank debts that they had contracted during the boom period. Borrowing for long-term improvements, farmers had been served by the new and greatly expanded banks of the South and West, as well as by the western branches of the Bank of the United States. Bank stockholders who had borrowed on the basis of unpaid stock found themselves forced to meet their debts. Speculators and others who had bought public lands during the boom were now confronted with heavy debt burdens. Merchants suffered from the decline in prices and demand for their produce and from heavy debts. Their debts to the British as well as to domestic creditors were often canceled by the ruthless process of bankruptcy. Niles judged that no less than $100 million of mercantile debts to Europe were eliminated by bankruptcy during the depression. So low were prices and so scarce was the monetary medium in the frontier areas that there was a considerable return to barter conditions among farmers and other local inhabitants. Various areas returned to barter or the use of such goods as grain and whiskey as media of exchange.
• 125Economic distress was suffered by all groups in the community. The great fall in prices heavily increased the burden of fixed money debts, and provided a great impetus toward debtor insolvency. The distress of the farmers, occasioned by the fall in agricultural and real estate prices, was aggravated by the mass of private and bank debts that they had contracted during the boom period. Borrowing for long-term improvements, farmers had been served by the new and greatly expanded banks of the South and West, as well as by the western branches of the Bank of the United States. Bank stockholders who had borrowed on the basis of unpaid stock found themselves forced to meet their debts. Speculators and others who had bought public lands during the boom were now confronted with heavy debt burdens. Merchants suffered from the decline in prices and demand for their produce and from heavy debts. Their debts to the British as well as to domestic creditors were often canceled by the ruthless process of bankruptcy. Niles judged that no less than $100 million of mercantile debts to Europe were eliminated by bankruptcy during the depression. So low were prices and so scarce was the monetary medium in the frontier areas that there was a considerable return to barter conditions among farmers and other local inhabitants. Various areas returned to barter or the use of such goods as grain and whiskey as media of exchange.
• 126One thing seems to be universally conceded, that the greater part of our mercantile citizens are in a state of bankruptcy—that those of them who have the largest possessions of real and personal estate . . . find it almost impossible to raise sufficient funds to supply themselves with the necessaries of life—that the citizens of every class are uniformly delinquent in discharging even the most trifling of debts.