HISTORY OF THE UNITED STATES
THE FIRST CRISIS - 1819
THE industrial boom created by the Embargo, the war, western land speculation, and the canal and turnpike enthusiasm, and fostered by the tariff of 1816 gave the infant capitalism severe internal pains, climaxing in the first crisis in 1819.
There were as many explanations of the cause of this crisis as of any of the subsequent ones. Senator Thomas H. Benton was positive that it was caused by the new United States Bank, that had been chartered in 1816.1 Many others were sure it was caused by the tariff enacted in the same year. It was really but the American phase of an almost universal collapse of industry and finance following the readjustments attendant upon the close of the Napoleonic wars. Unfavorable weather in Europe had almost ruined the crops of 1816-1817 in England, France, and Italy, adding a catastrophe of nature to an industrial collapse.2Within the United States the period immediately preceding the crisis had been one of feverish speculation.3 Although there was still a vast quantity of
1. Thomas H. Benton, "Thirty Years in the United States Senate," Introduction, pp. 5-6; William H. Gouge, "A Short History of Paper Money and Banking in the United States," pp. 33-35.
2. H. De Gibbins, "Economic and Industrial Progress Century," in Nineteenth Century Series, Vol. XV, pp. 108-109.
3. Niles' Register, June 12, 1819 P. 257.
"no-rent" land,1 there had been a wild struggle to secure possession of western lands, with all the attendant phenomena of excessively high prices, fraudulent purchases and manipulation that became so familiar in later years.2 The new manufactures also offered a favorable ground for speculation. Joint stock companies, as corporations were still called, had been organized in great numbers, and their stock floated upon the first battalion of that immense army of "innocent purchasers" who have been absorbing similar issues ever since. These same trusting individuals were given an opportunity to absorb a large quantity of stock in canal and turnpike companies, many of which went bankrupt during the ensuing crisis.
The whole situation was greatly aggravated by a state of financial chaos. The
charter of the first Bank of the United States, the one championed by Hamilton,
had expired in 1811. At once a multitude of private and state banks sprung up.
Frequently the principal asset of these banks consisted of a set of plates from
which to print paper money. This money was loaned to
1 Warden, "Statistical, Political, and Historical Account of the United States" (1819), Introduction, p. xliv : "Rent exists in a very limited degree in the United States. . . . Except in the immediate neighborhood of great towns, there is very little land let at lease in the United States, the price being so low that any person who has the capital necessary to enter upon the business of farming finds the purchase money of the land a very small addition to his outlay."
2. C. F. Emerick, " The Credit System and the Public Domain," p. 6 et seq. "The year 1814 witnessed the beginning of a great increase in the sales of public lands. In that year 864,536 acres were sold, or 245,370 more than in any year since 1796. During the succeeding five years the sales assumed vast proportions, in 1819 reaching 5,475,648 acres. These figures were not surpassed until 1835." Flint, "Geography and History of Western States," pp. 348-350.
prospective purchasers of land, the bank being secured by a mortgage on the land.
Capitalism, scarcely in existence, could hardly be expected to evolve any effective system of banking. It fell back upon individual initiative, and turned over the function of printing money to whatever band of clever men might get together and secure the easily obtained sanction of some state government. The Constitution forbids any state to "emit bills of credit," but by some strange twisting of this phrase it was held that the states were free to confer this right upon individuals. It would be impossible to exaggerate the carnival of swindling that followed. Nearly every legislature was besieged with applicants for bank charters, and those best able to influence such legislation were granted practically unlimited power to print and circulate money.
Any sudden shock would tumble such a house of cards about the heads of its builders. The shock came when the second Bank of the United States sought to force the restoration of specie payments that had been suspended during the war. This second bank, unlike the first one, was owned largely outside of New England.1 For the moment the Middle states, with their growing manufactures, and the Southern states, with a profitable cotton crop, were more prosperous, more directly interested in and favored by the national government, and therefore, more patriotic than the decaying commercial states of New England.
Once more a note should be made of the attitude of three men. John C. Calhoun of
South Carolina opened
1. McMaster, "History of the People of the United States," Vol. IV. PP- 313-314.
the debate in Congress in support of the bank. In this he was strongly assisted by Henry Clay of Kentucky, then Speaker of the House of Representatives. The great opponent of the bill was Daniel Webster of Massachusetts.1 Each of these men reflected a sectional economic interest in this position. As those interests changed, the beliefs and political principles of these men veered to suit the changing wind.
The earliest beginnings of this bank, that was to be such an important factor in the financial, industrial, and political life of this country, were tainted with fraud. The provisions for a paid-in capital, which had been a part of the law creating it, were evaded. The first subscribers were allowed to borrow money upon their stock with which to purchase more stock, and so on until a most unsteady pyramid was built with no genuine assets at bottom.2 The operations of the bank were then manipulated to the benefit of the board of directors and stockholders. Among the latter, it was alleged by Niles, who was by no means an enemy of the bank, were forty members of Congress.3
The scandals were so great that a Congressional committee was appointed to
investigate the bank, and when this committee reported, January 16, 1819, the
bank stock fell from near 140 (at which point it had been accepted as collateral
for loans up to almost its full market value) to 93.4 Yet the report
was largely a whitewash, and its main effect was to frighten the president of the
bank into fleeing from the country. Three
1. McMaster, loc cit., Vol. IV, pp. 310-311.
2. Wm. H. Gouge, "History of Paper Money and Banking," p. 27.
3. Niles' Register, Feb. 27, 1819.
4. Gouge, loc. cit., p. 30.
years later a report was forced from the institution that showed that it was absolutely bankrupt at the time of the Congressional investigation, and that it had been guilty of nearly all the acts of crooked finance that such a still unsophisticated age knew.1
Immediately after the Congressional investigation and the flight of the president, a new administration realized that only the most drastic steps would save the institution from actually going through bankruptcy proceedings, with the probable criminal prosecution of its officials. There was an immediate restriction of credits, a sudden demand for collections, and an insistence upon specie payments from other banks.
When the Bank of the United States refused to accept the notes of the insolvent state banks, the latter promptly failed, their securities fell into the hands of the national institution, and the tens of thousands of debtors who had borrowed this money for land speculation and other purposes had their property taken away by foreclosure of mortgages.2
At once a great "Populistic" movement swept over Kentucky, Illinois, Tennessee, Indiana, and Ohio. The legislature of Kentucky established a state bank, with little more than wind for assets, and declared war upon the Bank of the United States. Maryland, Tennessee, Georgia, North Carolina, Kentucky, and Ohio, all endeavored to tax the branches of the Bank of the United States. But John Marshall was Chief Justice of the Supreme Court, and in the famous case of McCullough vs. Maryland the right of the state to tax the
1. Gouge, loc. cit., p. 31.
2. F. J. Turner, "Rise of the New West," pp. 126-127.
bank was denied. But the frontier cared little for Supreme Court decisions, and Ohio proceeded to flaunt the decision and to collect the tax by force of arms, while Kentucky withdrew the protection of state laws from the branches located in that state.1
The revolt of the West was not surprising. The bank had obtained possession through mortgages of vast tracts of land, both urban and rural. The suffering everywhere was intense.
Thomas H. Benton introduces his "Thirty Years' View" with this striking description of the situation in 1820: -
The years 1819 and 1820 were a period of gloom and agony. No money, either gold or silver: no paper convertible into specie : no measure or standard of value left remaining. The local banks (all but those of New England), after a brief resumption of specie payments, again sank into a state of suspension. The Bank of the United States, created as a remedy for all these evils, now at the head of the evil, prostrate and helpless, with no power left but that of suing its debtors, and selling their property, and purchasing it for itself at its own nominal price. No price for property or produce. No sales but those of the sheriff or marshal. No purchasers at the execution sales but the creditor or some hoarder of money. No employment for industry - no demand for labor -no sale for the produce of the farm - no sound of the hammer but that of the auctioneer knocking down property. Stop laws - property
1. Frederick J. Turner, "The Rise of the New West," pp. 136-140, 300; J. B. McMaster, "History of the People of the United States," Vol. IV, pp. 484-510; Horace White, "Money and Banking," p. 285.
laws - replevin laws - stay laws - loan office laws the intervention of the legislator between the creditor and debtor : this was the business of legislation in three-fourths of the states of the Union -of all South and West of New England. No medium of exchange but depreciated paper : no change even, but little bits of foul paper, marked so many cents and signed by some tradesman, barber, or inn-keeper: exchanges deranged to the extent of fifty or one hundred per cent. DISTRESS the universal cry of the people : RELIEF the universal demand thundered at the doors of all legislatures, State or Federal.1
were seldom needed. In 1815 Henry Niles, the editor and publisher of Niles' Register, estimated that there was one pauper for every 250 persons. He also states that no provision was made for any save for those who were disabled physically, except during a short time in the winter.1 During the winter of 1819-1820 soup houses were established in several of the larger cities. A little later a committee was appointed to investigate the public charities of Philadelphia, and its report reveals a mass of misery among the workers that foretells the city slum of to-day.
While the national government was being used to collect the last farthing from the little farmers and half starving wageworkers, the same forces that were utilizing that government for debt-collecting purposes were developing a bankruptcy code that should free the merchant, banker, manufacturer, and planter from such of his debts as he was unable to pay. The governors of Louisiana and Rhode Island urged the enactment of bankruptcy legislation in their annual messages in 1816. Several states already had enacted such laws, although the national government had repealed the one enacted in 1800, after an existence of only three years. These laws were quickly taken advantage of, and Niles in 1819 remarks that "Twenty or thirty years ago if a man failed for $100.000, people talked about it as something marvelous. But now," he adds, "it is not considered decent for a man to break for less than $100,000 and if a person would be thought a respectable bankrupt, he ought to owe two or three hundred thousand more." A New York judge before whom. some of these bank-
1 Niles' Register, IX, p. 232.
ruptcy cases were brought expressed himself as horrified that people "from the class of society" that composed the bankrupts could commit such crimes. He added that he had "witnessed displays of depravity on the part of the agents of moneyed institutions of the most appalling character."1
The pressure of the panic created criminals at both ends of the social scale. A "Bank Director," writing to the London Courier for May 11, 1820, states that "Mail robberies and piracies are quite the order of the day. Two men were hung at Baltimore a few months ago for robbing the mail : two more will experience the same fate in a few days at the same place for the same crime. Two men are to be hung there a week hence for piracy, and five others are under sentence of death."2
The reorganization following the panic accelerated the industrial tendencies and social readjustments already noted. By 1828 manufacturing had so dominated over commerce in Massachusetts that Webster announced that since the interests of his constituents had become bound up with protection, he had changed his mind and would now support the tariff.
The whole set of social institutions changed to adjust themselves to this new
industrial base. The old Federalist party died out in New England, once its
stronghold.3 The religious reflex of the decline of commerce and the
rise of manufactures was so like the religious movement that accompanied the rise
of capitalism in Europe that it has been designated as "The New England
1. Gouge, loc. cit., p. 51.
2. Ibid., p. 36.
3 Turner, "Rise of the New West," pp. 16-20; Ostrogorski, "Democracy and the Organization of Political Parties," Vol. I, pp. 26-27.
tion." The orthodox clergy that had so long actively participated in the rulership of society were disturbed by the rise of new sects. In the very stronghold of Puritanism, the old orthodoxy was attacked and overthrown by the most liberal of creeds, - Unitarianism. The Congregational clergy, long a part of the ruling hierarchy, was split into warring sects. William E. Channing wrote his famous letter in defense of Unitarianism to the Rev. Samuel Thatcher in 1815. By the time the lines were clearly drawn it was discovered that the new religious forces had captured Harvard College. There was also a division of a similar character in the ranks of the Quakers, and numerous peculiar and separatist sects rose throughout the West.2
A national and independent industrial life could not but have its expression in
the beginning of a national literature. Washington Irving, really the first
American author of any importance, wrote his "Knickerbocker's History of New
York" in 1809, and his next, and much more important work, the "Sketch Book," in
1819. Emerson was graduated from Harvard in 18211, the same year that James
Fenimore Cooper published "The Spy." The North American Review was founded in
1815, and published "Thanatopsis," by William Cullen Bryant,
the next year.2
1 W. B. Cairns, "The Development of American Literature from 1815 to 1833," Bulletin of the University of Wisconsin, pp. 8-9.
2. Ibid., p. 25.