The Panic of 1819 (40 page)

⁸¹
New Orleans
Louisiana Gazette
, May 6, 1820; Tregle, “Louisiana and the Tariff.”

⁸²
Washington (D.C.)
National Intelligencer
, August 25, 1821. The “Friends of Natural Rights” also attacked “Professor Daniel Raymond” for presuming to correct Adam Smith, and faring no better than Lord Lauderdale.

⁸³
Tyler came from an aristocratic family. Later Governor and U.S. Senator, as well as President, he was a Jacksonian until the removal of deposits and sub-treasury issues arose. Silsbee was a leading Salem merchant and shipowner. Formerly noted as a Jeffersonian, Silsbee was a director of the Boston branch of the Bank of the United States and later U.S. Senator.

⁸⁴
Annals of Congress
, 16th Congress, 1st Session, pp. 1952ff.

⁸⁵
Ibid., pp. 1987ff.

⁸⁶
Petition of Merchants and Citizens of Baltimore, U.S. Congress,
American State Papers: Finance
3, no. 565 (January 5, 1820): 448. The Baltimore merchants were led by William Patterson. Also see the petition of the New York City Merchants, in New York
Daily Advertiser
, December 14, 1819; Convention of Friends of National Industry,
Petition;
“No Inflation,” New York
Commercial Advertiser
, December 21, 1819; “C.W.” in New York
American
, February 9, 1820; New York
Evening Post
, December 20, 1819.

⁸⁷
U.S. Congress,
American State Papers: Finance
3, no. 560, pp. 440ff. Also see petition of William Few’s American Society of New York City for Employment of Domestic Manufactures, ibid., no. 561, p. 443; Bishop,
History of Manufactures
, pp. 256ff.

⁸⁸
New York
Daily Advertiser
, December 17, 1819, and February 11, 1820; “Galeani,” in New York
Evening Post
, April 25, 1820; Cambreleng,
An Examination
, pp. 151–54. (James De P. Ogden) “Publeus,” in New York
Commercial Advertiser
, December 15, 1819; John Pintard, New York
Daily Advertiser
, January 6, 1820; “R.L.” in Washington (D.C.)
National Intelligencer
, December 30, 1819.

⁸⁹
U.S. Congress,
American State Papers: Finance
3, no. 567 (January 6, 1820): 451.

⁹⁰
Ibid., 3, no. 579 (February 8, 1820): 484ff. Also see Petition of Chamber of Commerce of Philadelphia, Robert Ralston, president, ibid., 3, no. 586 (March 11, 1820): 518.

⁹¹
From the Baltimore
Telegraph
, reprinted in the Richmond
Enquirer
, January 1, 1819.

⁹²
On the rise of the auction system in this period, see Westerfield, “Early History,” pp. 200ff.

⁹³
Philadelphia
Union
, February 8, 1820; “H.B.” in New York
Columbian
, February 19, 1819.

⁹⁴
“A Pennsylvanian,” Philadelphia
Union
, February 11, 1820; “C.W.” in New York
American
, February 9, 1820; New York
Evening Post
, December 20, 1819.

⁹⁵
New York
Evening Post
, January 11, 1817.

⁹⁶
Bishop,
History
, vol. 2, p. 258. U.S. Congress,
American State Papers: Finance
3, no. 567 (January 6, 1820): 51. Petition of Chamber of Commerce of New York City, William Bayard, president, John Pintard, secretary.

⁹⁷
Ibid., 3, no. 560 (December 20, 1819): 440ff. Also petition of citizens of Middleton, Connecticut, ibid., 3, no. 568 (January 10, 1820): 452. Also see Convention of Friends of National Industry in New Jersey,
Petition
, passim.

⁹⁸
Annals of Congress
, 16th Congress, 1st Session, pp. 2174–75. Actually the 10 percent tax was to apply only to important items such as woolens, cottons, etc. Minor items were to pay 1 to 2 percent. See
Niles’ Weekly Register
18 (May 5, 1820): 182ff.

⁹⁹
New York
Patron of Industry
, June 6, 1821.

¹⁰⁰
Niles’
Weekly Register
20 (July 21, 1821): 322.

¹⁰¹
New York
Patron of Industry
, June 16, 17, 20, 1821.

¹⁰²
Niles’ Weekly Register
21 (October 13, 1821): 103. The report was presented on September 24 and signed by Stephen Lockwood, chairman.

¹⁰³
Maryland General Assembly,
Votes and Proceedings of the House of Representatives
, 1820–21.

Confronted with the nation’s first great panic, Americans searched widely for the causes of and remedies for their plight. Their search led them to a wide variety of suggestions and controversies, many of which showed keen insight and economic sophistication. Discussion was carried on in the newspapers, in monographs, and in the halls of legislatures. Particularly striking is the high caliber economic thinking of the influential journalists of the day and of many leading political figures. The absence of specialized economists was in a way compensated by the economic knowledge and intelligence of the articulate members of the community, including the leading statesmen.

One of the chief centers of attention was the monetary system. The nation’s monetary system was highly imperfect; banking on a nationwide scale was new, and the nation suffered from inconvertibility and varying rates of depreciation during the War of 1812 and elimination and then renewal of a Bank of the United States. There had always been men who favored inconvertible paper for purposes of national development and men who opposed it, but lately little attention had been paid to such schemes. The panic caused monetary troubles to intensify and take on a new urgency. Groups of monetary expansionists arose, many of them respectable pillars of their communities, who wished to stop contraction of the money supply and expand the circulating medium instead. Various types of plans were developed and advanced, on both a federal and state level. Most discussion was on the state level, where all banks except
the Bank of the United States were chartered. The most moderate wished to bolster the failing banks by permitting them to suspend specie payment temporarily while continuing in operation. Others turned to the creation of wholly state owned banks or loan offices to issue inconvertible currency. Many states adopted measures to bolster or expand the money supply, including attempts to outlaw depreciation of bank notes. Four western states—Illinois, Missouri, Kentucky, and Tennessee—went to the length of establishing state owned inconvertible paper. The measures were only adopted after keen controversy.

Many writers advocated more ambitious schemes of a federal inconvertible paper money. None came to a vote in Congress, but the House asked Secretary of Treasury Crawford to report on the desirability of such a plan. Crawford’s rather reluctant rejection buried the idea. His own paper scheme, though finally rejected by him, drew sharp comment, which incidentally provided some keen analysis of monetary problems and business fluctuations.

The basic argument of the monetary expansionists was a need to relieve an alleged scarcity of money, thereby eliminating the depression by aiding debtors and raising prices. The more sophisticated inflationists added their contention that the rate of interest depended inversely on the quantity of money, and that expansion would therefore lead to a beneficial lowering of the rate of interest, and hence to restored prosperity.

The “sound money” opponents of such schemes formed a majority of leading opinion. Their major argument was that depreciation would ensue from any inconvertible paper schemes. But in the process of forming their opposition, much higher level analysis was elaborated. Many hard money writers formulated a monetary explanation of the business cycle—seeing the cause of depression in an expansion of bank credit and money supply, a subsequent rise in prices, specie drain abroad, and finally contraction and depression. Monetary expansion would only renew this process and prolong the contraction necessary to liquidate unsound banks and reverse the specie drain. The only cure for the depression, they concluded, was a rigid enforcement of specie payment. Sound money
writers conceded that monetary contraction would bring temporary disturbances, but declared that any legislative intervention would only aggravate the situation.

Much of the discussion concerned the procedure to best maintain
confidence
. The inflationists urged that new money would bolster confidence and induce money to leave idle hoards, thereby restoring prosperity. Their opponents, on the other hand, maintained that confidence could only be achieved by strict adherence to specie payment.

Believing that excessive bank credit was primarily responsible for the depression, restrictionists generally advocated various controls over credit as a method of relieving the present depression and preventing future ones. Various plans were offered (in addition to insistence on strict adherence to specie payments): for example, banks should be allowed only in cities; prohibition of small denomination notes; and the prohibition of interbank borrowing. Hostility to banks was widespread throughout the nation, and many influential figures went so far as to advocate abolition of banking, or virtual abolition through imposing 100 percent reserves. In practice, however, they were often willing to accept more immediately attainable proposals for restricting bank credit. Leading Virginia statesmen were particularly prominent in the hard money ranks.

Thus, America had quite a few exponents of the “Currency principle”—100 percent reserve banking and the idea that fiduciary bank credit causes a business cycle—several years before Thomas Joplin first gave it prominence in England. Perhaps one reason for this precedence was that Americans, while benefiting from the famous English bullionist discussions on problems of an inconvertible currency, were forced to grapple with inflation under a mostly convertible currency several years before the English—who did not complete their return to specie payments until 1821.

Hostility was also engendered toward the Second Bank of the United States, which had touched off the monetary contraction at the onset of the panic. Legislatures passed resolutions urging the elimination of the bank, and some states levied taxes on it or sanctioned suspension of specie payment to the bank only. Little was
done in Congress to curb the bank, however. The depression intensified a longstanding political controversy concerning the power of the bank. It is often overlooked, however, that hostility to the bank on economic grounds came from two opposing directions: from those who attacked it as too restrictive, and from the hard money
ultras
who considered it a nationwide engine of monetary expansion. Such ultra hard money leaders as the Virginia group had little use for either state or federal banking.

Much of the discussion between the hard and soft money forces was on a highly sophisticated level. Some inflationists welcomed the prospect of a limitless flood of money and even advocated depreciation as helping to build up a home market, but wiser ones countered the opposition with the
thesis
that an inconvertible currency could be more stable in value than specie. Specie was subject to fluctuations of supply and demand, but paper could be regulated by the government so as to provide a stable value of the dollar. Hard money men were generally content to grant this in theory but to deny its practicality, asserting that the government would always tend to inflate the currency. Some added the subtle theoretical argument that the value of money could not be measured, and denied that such stabilization was either possible or desirable.

The twin planks of the relief platform in the states were inconvertible state paper and debtors’ relief. Debtors’ relief took the form of stay laws and minimum appraisal laws. These measures had been used before in America, but not on such a widespread or intensified scale. In some cases they were adopted by themselves; in others they were used as means to bolster the circulation of the new inconvertible notes. Controversy over debtors’ relief proposals raged in states throughout the Union. Minimum appraisal laws were enacted in four western states—Indiana, Missouri, Ohio, and Tennessee—while stay laws were enacted in eight, two of them in the East (Maryland and Vermont). Some other eastern states (e.g., New York, Rhode Island, Pennsylvania) modified their procedures to ease the strain on insolvent debtors.

The reasoning of the relief forces was generally simple and straightforward: the debtors were in a bad plight, and it was the duty
of the legislature to come to their relief. Stress was often laid on the burden placed on debtors by the
rise
in the purchasing power of the dollar during the depression, with debtors being forced to repay in money of far greater value than they had borrowed. The opponents of relief could not deny the plight of the debtors. Their economic argument emphasized that alleviation of the debtors’ problems would only intensify the depression in the long run, for creditors would lose confidence, and this would aggravate the depression and delay recovery. The only lasting help for debtors was to let the economy take its course and await the resumption of confidence. Furthermore, the debtors would thereby be forced to hew to the virtues of thrift and hard work, the only long run basis for prosperity.

One debt problem was a federal one: the public land debt, a mass of which was owed to the government. Granting more liberal terms of credit clearly constituted no interference with private contract. Congress moved to permit debtors to relinquish the unpaid portion of their land, to forgive much of the outstanding debt and keep title to the rest, and to grant extended time for payment. The impetus for this relief came from the West, but it was generally supported in all sections and passed overwhelmingly. Leading opposition, in fact, came from westerners who wanted aid confined to the actual settlers. President Monroe’s inaction in the face of the depression has been often stressed, but it should not be forgotten that he took the lead in sponsoring public land debt relief. Monroe did not overlook the depression in that case when he believed federal action appropriate.