The Panic of 1819 (33 page)

The citizens of Detroit also took action against clipped, or “cut,” silver, which made its appearance in force during the panic. The Detroit
Gazette
urged its readers to accept cut silver only by
weight
, and not at face value. A year later, in August, 1821, a large meeting of Detroit citizens resolved to refuse to accept cut silver coins, and to do all they could to discourage their circulation. This voluntary action effectively ended cut coin in Detroit.
⁷⁴

The state of Tennessee saw a concerted drive by hard money forces at the same time that expansionists were pushing their proposals. A petition from Warren County, a rural county in mid-Tennessee, demanded bluntly that banks be placed on a plane of “constitutional equality with the citizens,” by compelling them to redeem their notes in specie. Refusal should entail a penalty interest on the bank, and stockholders should be personally liable. Similar petitions were received from Smith and Giles Counties, in mid-Tennessee.
⁷⁵
A bill to compel specie payment or suffer an interest penalty was introduced in the House in the late 1819 session, by the hard money leader, Representative Pleasants M. Miller of Knoxville. The bill passed the House by a 20-to-14 vote, but was rejected in the Senate.
⁷⁶
Representative J. C. Mitchell, of Rhea County in East Tennessee, proposed instead to make all real and personal property of
bank stockholders liable for bank debts, but the House spurned this for the stronger Miller bill.
⁷⁷
After assuming office in 1821, Governor William Carroll turned the tide of the state’s expansionist legislation and called for coerced resumption of specie payments, a step which was eventually adopted. One point of interest for the later post depression years was that the young future President James K. Polk, a wealthy cotton planter, began his political career with a staunch advocacy of return to specie payments. Polk maintained that specie payments were essential for confidence and in order to end depreciation.
⁷⁸
Polk also proposed a measure to speed up execution against the property of any bank that might refuse to pay specie. Joining young Polk at this time was the frontier representative from western Tennessee, Davy Crockett, who “considered the whole Banking system a species of swindling on a large scale.”
⁷⁹

A great deal of anti-bank sentiment was expressed in Kentucky during the controversy over inconvertible paper schemes. State Senator Jesse Bledsoe, from Bourbon County, delivered a speech which was later reprinted in pamphlet form. The speech was essentially a denunciation of the banking system as the cause of the depression through granting credit, thereby generating debt burdens and bankruptcies. Bledsoe called for the abolition of incorporated banking and compulsory redemption in specie by the banks.
⁸⁰

Amos Kendall, influential editor of the Frankfort (Ky.)
Argus
, and a future Jacksonian advisor, became a bitter opponent of the entire banking system as a result of the depression.
⁸¹
The very thought of banks he found “disgusting.” The best method of rendering them
harmless, he felt, was simply to prohibit them by constitutional amendment. If, as seemed likely, such a step was not politically feasible, then the next best step was to require every bank to give a security fund to the courts to provide for payment for their paper. This requirement, he believed, would insure that all liabilities could be redeemed (in effect, a 100 percent reserve plan) and would be more effective than to require individual stockholder liability.

As soon as the panic struck, Governor Gabriel Slaughter quickly called for action to restrict the banks.
⁸²
He advocated making stockholders and directors individually liable for bank notes. Ideally, Slaughter sought a federal constitutional amendment to outlaw all incorporated banks.
⁸³

In the Kentucky legislature, Representative John Logan from Shelby County, near Frankfort, proposed a set of resolutions to investigate the mass chartered “independent” banks with a view to repeal the charters of those found violating their requirement to pay specie on demand. These banks, forty in number, had opened in the spring of 1818, expanded their notes rapidly, and were now refusing to redeem. They had an aggregate capital of $89 million.
⁸⁴
Representative Thomas C. Howard, of Madison County, south of Lexington, attempted to amend the resolution to repeal immediately the charters of all the independent banks. The resolution for investigation passed overwhelmingly, but the repeal measure was beaten by a three-to-one margin.
⁸⁵

Kentucky moved swiftly against the banks. In early 1819, the bank committee reported to the House a rather mild bill along the lines of Slaughter’s message. It required that banks pay a tax of ½ percent per month on their capital, that the directors be individually liable for the notes of their bank, and that there be “double liability” for stockholders. When the bill reached the floor, there was
a flurry of attempts both to weaken and strengthen the measure. The pro-bank forces succeeded in including an amendment requiring the state treasury to receive the notes of all banks complying with the bill. They failed by a two-to-one vote to require the state to receive the notes of all banks incorporated in Kentucky, regardless of what provisions they followed.

The restrictionists passed far stronger amendments. One was a proviso requiring the state to refuse any notes in taxes unless the bank, each year, bonded with an auditor security in pledge that the banks pay all demands in specie. This passed by a two-to-one vote. An amendment to extend the provisions from the “independent” banks to all banks in the state failed by two to one. Finally, the legislature passed the bill restricting the action of the independent banks.

In January, 1819, there was also introduced into the legislature a very vigorous series of anti-bank resolutions. They charged that banks were a moneyed monopoly and substituted speculation for production. They concluded that banks should be abolished by the federal government and the states. No action was taken on this proposal.
⁸⁶
Early in the 1820 session, the legislature finally repealed the charters of the independent banks, ending also their mass of depreciated notes. Almost all these banks had suspended payments by mid-1819.
⁸⁷
The bill, commended heartily by Niles, passed by a two-to-one vote in the House and by a narrow three-vote margin in the Senate.
⁸⁸

Restrictionist proposals in the federal arena concentrated, of course, on the activities of the one federally chartered bank, the Bank of the United States. Representative John Spencer, from upstate New York near Onondaga, and chairman of the famous committee that had revealed some of the malpractice of the bank,
introduced a resolution to forfeit the bank’s charter unless it accepted restrictions on its activities.
⁸⁹
These included provisions against fraud in the purchase of bank stock, reduction of its capital, and a maximum limitation of $5 million of bank holdings in United States bonds. Spencer withdrew his proposal after he saw that there was no chance for adoption. Representatives David Trimble from the vicinity of Lexington, Kentucky, and Joseph Johnson from northwest Virginia, went further to propose outright repeal of the bank charter. Trimble declared that the bank had failed in two of its original purposes—equalizing exchanges within the country, and checking the paper issues of local banks. On the contrary, it had contributed to excessive credit expansion by waiving the collection of stock installments in specie. He predicted that if the bank continued in operation the currency would only be further depreciated and deranged. Representative James Pindall, from northwest Virginia, denounced the bank for expanding its issues, as well as for withdrawing needed specie capital from other banks.

The Trimble Bill failed by an overwhelming margin. Indeed, the only restriction on the bank that passed was a bill by Representative Burwell Bassett from eastern Virginia, to prohibit any director of the bank from dealing in its own stock.
⁹⁰

Except for these proposed restrictions or abolition of the Bank of the United States, Congress had little chance to consider the banking problem. One interesting pronouncement, however, was a report in February, 1820, by Representative Joseph Kent, of Maryland, from the outskirts of Washington. Kent, Chairman of the District of Columbia Committee, reported on a proposal to consolidate
the banks in the Capital territory.
⁹¹
Kent opposed compulsory consolidation. He stated that competition in banking was salutary, and that while banks were injurious, there would be no remedy in suddenly prostrating them. Instead, the evil excesses of banking were currently being corrected through failures and lowered profits.

One of the few leading citizens opposing severe restrictions on banking from a point of view not simply expansionist, was the influential New York merchant, Churchill C. Cambreleng.
⁹²
He declared banks only secondarily responsible for the economic evils, since they were not the only creators of “fictitious capital.” If bank credit were suppressed, other forms of credit would replace it. “Legislatures might as well attempt to confine the wind—as to encircle credit with legal restrictions.” Cambreleng, however, was by no means in favor of unrestrained banking action. On the contrary, he believed that unincorporated private banks injured trade and property and should be eliminated. Incorporated banks were beneficial, but they must be rigidly regulated by the government, namely: there should be a maximum limit on the amount of paper issued; annual statements and reports by banks should be required; and banks should be compelled to pay specie on penalty of a 12 percent interest payment. Such regulations, asserted Cambreleng, were particularly needed in the southern and western states.

Thus, monetary restrictionists did not all limit themselves to opposing inflationist schemes and calling for enforcement of specie payment by the banks. Many went further to suggest regulations of banks to facilitate the maintenance of specie payment. Quite a few wanted to confine banks to the principal commercial cities, to prohibit notes of small denominations, or to confine bank loans to short-term commercial discounts. Some believed that vigorous competition between banks would suffice to restrict the note issue
of each. They saw that interbank agreements would thwart such restriction and concluded that such agreements should be outlawed. Many leading restrictionists proceeded onward to condemn all banks, and either recommended outright repeal of all bank charters or an enforced 100 percent specie reserve. This position is particularly interesting, as it predated the enunciation of the similar Currency Principle in Great Britain.

It is clear, once again, that hard money opinion was not stratified along geographical or occupational lines. Restrictionist sentiment ranged from such eminent and disparate leaders as Thomas Jefferson and John Quincy Adams to obscure western farmers. Hard money opinion was particularly strong in Virginia, New York City, and New England, but it permeated every state and territory in the Union. Party lines meant little, for ultra-hard money sentiments were echoed by arch-Republicans and Federalists alike. In New York State, the two bitterly disputing Republican factions (De Witt Clinton, and Van Buren-Tammany) both upheld a sound money position. Hard money leadership was abundant and influential in the West as well, although wealthy and influential leaders of opinion were also ranged on the other side of the fence. Furthermore, it cannot be said that commercial towns favored one or the other of the monetary positions—expansionist and restrictionist—while rural areas favored another. Each subdivision of each geographic region engaged each other vigorously in the press, and disputants often came from the same county. Taken all in all, it is fair to say that the majority of leading opinion was on the hard money side, at least to the extent of supporting specie payment and opposing inflationist plans. Only a minority of restrictionists pressed further for more drastic measures against bank paper.

The Panic of 1819 intensified hostility against the Bank of the United States, and enmity toward the bank grew throughout the country. Aside from long-standing hostility on general political or constitutional grounds, opponents of the bank consisted of the uncompromising wings of two diametrically opposed camps: the inflationists who wanted inconvertible government paper, and the hard money forces who criticized the bank for acting as a national
force for monetary expansion. Historians portraying the struggle over the Bank of the United States have often overlooked, or slurred over, this critical distinction.
⁹³
The Jacksonian war against the bank has often been depicted as an inflationist battle against central bank restrictions on credit. Yet the opposite viewpoint, which realized that the bank’s nationalizing force was a powerful engine of credit expansion, was also important, as evidenced by hard money attacks on the bank during the 1818–21 period.

Another major area of controversy generated by the depression presented far more clear-cut sectional and occupational features than the monetary debates; this was the tariff question.

______________

¹
Crawford,
Report
, p. 15.

²
Also see “Agricola,” in Washington (D.C.)
National Intelligencer
, April 21, 1819, December 31, 1819; January 11, 1820; and “A Farmer,” March 25, 1819.

³
Georgia General Assembly,
Journal of the House of Representatives, 1818–19
(December 1, 1818): 56; (December 10, 1818): 76ff. For an attack on excessive bank paper, see Washington (Ga.)
News
editorial reprinted in the Washington (D.C.)
National Intelligencer
, August 4, 1821.