The Panic of 1819 (41 page)

The tariff question was another issue that sprang into prominence during the depression. After the War of 1812, the tariff of 1816 had been enacted with general approval in the national spirit carried over from wartime, and in the wish to aid the manufactures developed during the war. Since then, the tariff issue had been dormant, only to revive in the depression in its more modern form as an active, almost evangelical, movement. The movement centered in the Middle Atlantic states and was led by cotton and woolen manufacturers. A determined drive for a high tariff was narrowly defeated in the
Senate in 1820, along with two subsidiary measures designed to hamper imports: a prohibitory tax on auction sales—the major sales outlet for imported textiles—and a suspension of the federal government’s practice of granting time for the payment of import duties.

The protectionists seized every opportunity to stress the severity of the depression, to press their claim that the tariff would furnish a cure. Manufactures would be bolstered and agriculture assured a steady home market. The phenomenon of widespread unemployment was heavily stressed by the protectionists, and they asserted that a protective tariff would bring about full employment for labor. The existence of unemployment was particularly used to rebut standard free trade objections that a higher tariff would withdraw needed resources from agriculture and commerce.

The free trade opposition centered in the South, where agriculture depended on exports, and in New England shipping centers. Free traders, when they answered the depression argument, maintained that the tariff would aggravate the depression in commerce and agriculture by blocking foreign trade. Some sophisticated free traders also charged that a higher tariff would aggravate the depression by imposing a tax burden on consumption, demonstrating also that falling prices had already increased the real burden of the tariff on the nation’s consumers. Thus, they arrived at the position that burdens on consumption should be abated during a depression.

The depression gave rise to suggestions for internal improvements as a partial remedy, in arguments reminiscent of the public works proposals of a later day. These projects would alleviate the depression by giving work to the unemployed, invigorating enterprise in the community, and quickening the circulation of money.

Many citizens objected to all these legislative remedies on the grounds of
laissez-faire
principle. Their arguments had two facets: (1) the government could not remedy the situation, and (2) a remedy could only come from the market processes themselves: via liquidation of unsound conditions and a return to the fundamental virtues of “industry and economy.” Even many of those with other proposals to offer felt that they must pay lip service to the pervasive belief in the importance of these twin virtues. Stress on the moral
virtues often took the form of attack on luxurious consumption and other extravagances of the day. Embryonic Veblenians called upon the rich to set an example in thrifty living to the lower classes, who tended to imitate the former.
¹

The
laissez-faire
partisans opposed higher tariffs and debtors’ relief legislation. Most of them were hard money stalwarts as well. Controls over banks were not considered interference in the market but rather an exercise of the government’s sovereign rights over the money supply and a prevention of bank interference with the market. The most cogent upholders of this view were the leading Virginians. Some ardent states-rights Virginians, in fact, were willing to grant federal control over banking. A few free traders, in contrast, favored an inflationist monetary policy. Some advocates of
laissez-faire
were uneasy about stringent regulation of banks, and a few evolved a rudimentary self-generating theory of business cycles, in which cycles were depicted as inevitably recurring business processes, always furnishing their own corrective countermovements. Protection and easy money, conversely, did not necessarily go hand in hand, as some leading protectionists remained staunch hard money men.

The struggles over remedial proposals took their place in the context of nineteenth century struggles over monetary and debt relief proposals. Many historians orient their discussion of such struggles in America along class or sectional lines. The image is often conjured up of poor western farmer-debtors favoring inflation, battling rich eastern merchant-creditors favoring sound money. The results of this study cast strong doubt on this common ideal-type.
²
In the widespread monetary struggles during the depression of 1819–21, at least, the battle of inflation vs. hard money cut
sharply across regional, geographic, wealth, and occupational boundaries. The fact that two wealthy cotton planters from Nashville were the leaders of the opposing sides of the raging controversies typified the monetary and debtors’ relief debates. Furthermore, several western governors and inflationist leaders completely changed their position after viewing the results of the inconvertible paper schemes. These shifts could scarcely have occurred so swiftly if their opinions had been determined by their class, occupation, or region. Caution should be exercised in employing the much used term “agrarian,” for often an agrarian turns out to be a wealthy land speculator rather than an impoverished settler. Sectional and occupational differences were far more clear cut in the tariff controversy, however, with manufacturers in the Middle Atlantic states ranged against southern farmers and planters and New England merchants.

The controversies inspired by the Panic of 1819 continued to make their imprint on later years in America. The protective movement, denied its victory at the time, triumphed in 1824. Inflation of inconvertible notes by states was generally discredited as an anti-depression weapon by the rapid depreciation of the notes. Many of the anti-bank, ultra hard money leaders of the Jackson-Van Buren period first came to a hard money position during this depression. Andrew Jackson himself foreshadowed his later opposition to banking by making himself the fervent leader of the opposition to inconvertible paper in Tennessee. Thomas Hart (“Old Bullion”) Benton, later Jackson’s hard money arm in the Senate, was converted to hard money by his experience with banking in Missouri during the panic. Future President James K. Polk of Tennessee, who was to be Jackson’s leader in the House and later to establish the ultra hard money Independent Treasury system, began his political career in Tennessee in this period by urging return to specie payment. Amos Kendall, later Jackson’s top adviser and confidant in the bank war, became an implacable enemy of banks during this period. Condy Raguet, though not a Jacksonian politically, did favor the Independent Treasury plan. He was converted to hard money during the Panic of 1819, after having been a leading inflationist since
the end of the War. (The depression also converted Raguet from a protectionist to one of the leading champions of free trade.) Raguet’s depression-born search for stricter controls over bank credit expansion led him to be one of the leaders in the free banking movement of the late 1820s.

One of the most impressive aspects of the discussions about the depression was the high intellectual level of the debate, as carried on in newspapers and elsewhere. Participants showed familiarity with English and Continental economists, and with the English reviews, and attempted to relate their practical proposals to a framework of theory to a degree that seems remarkable today.
³

There is a strong possibility that the panic gave a great impetus toward the launching of a class of economists in this country—in both the academic and journalistic fields.
⁴
The first treatise on economics published in this country was Daniel Raymond’s
Thoughts on Political Economy
in 1820 (expanded into
Elements of Political Economy
in 1823). It was written very much under the impact of the monetary and tariff controversies of the depression, in which Raymond was embroiled. John McVickar, the nation’s first academic economist, began teaching economics at Columbia College around this period, and later in the 1820s evolved the “free banking” plan, with bank notes to be secured by government bonds and land mortgages. In fact, many began teaching and writing economics during the 1820s, such as Thomas Cooper, Henry Vethake, William Beach Lawrence, Willard Phillips, Alexander Everett, George Tucker, William Jennison, Jacob N. Cardozo, the Reverend Samuel P. Newman, the Reverend Francis Wayland. Certainly much of this flowering of
economics in the United States can be attributed to the impetus given to economic thought by Ricardo, Say, and other European economists. Part of the credit, however, may well be assigned to the controversies over economic policy that the Panic of 1819 had brought into sharp focus.

The Panic of 1819 exerted a profound effect on American economic thought. As the first great financial depression, similar to a modern expansion-depression pattern, the panic heightened interest in economic problems, and particularly those problems related to the causes and cures of depressed conditions. Such important unsolved economic problems as monetary and banking policy, tariff protection, debt collection, internal improvements, all existed before the depression and all continued after it was gone. But the panic gave them new dimensions and aroused new speculations which were not to disappear with the return of prosperity.

______________________

¹
Here free traders joined forces with protectionists, who constantly inveighed against the use of imported luxuries.

²
Neither can this study endorse the opposite ideal-type of Bray Hammond, whose recent work tends to the contrary extreme of identifying agrarians with hard money, and merchants and businessmen with inflation. Hammond,
Banks and Politics in America
, passim.

³
On the great extent to which English and French economists were reprinted, translated, and sold in America during this period, see Esther Lowenthal, “American Reprints of Economic Writings, 1776–1848,”
American Economic Review
42 (December 1952): 876–80, and “Additional American Reprints, 1776–1848,” ibid., 43 (December 1953): 884–85; and David McCord Wright,
The Economic Library of the President of the Bank of the United States, 1819–23
(Charlottesville: University of Virginia Press, 1950).

⁴
See Michael J.L. O’Connor,
Origins of Academic Economics in the United States
(New York: Columbia University Press, 1944), pp. 29, 73, 102.

Aside from major controversies already discussed, other scattered proposals and discussions appeared during the depression. Internal improvements financed by the states, for example, were suggested in many quarters as remedial measures for the depression, thus anticipating modern public works proposals. These suggestions were reflections of the growing interest in internal improvements since the end of the War of 1812. An internal improvement drive was particularly strong in Pennsylvania, an early leader in improvement sentiment.
¹
Philadelphia’s Representative William Lehman, head of the Committee on Public Roads of the Pennsylvania House, sponsored a bill, early in 1820, for the appropriation of over $660 thousand on thirty projects throughout the state. One million dollars was envisioned as the final goal of the plan.
²
Lehman avowed that the measure was necessary for the immediate relief of the portion of people without employment. The bill, he said, was as much to relieve the unemployed as it was to lessen the cost of transport. Passage of the bill would relieve many citizens by giving them employment and would also call a large sum of money into “active circulation.” A supporter, Philadelphia’s Representative Josiah Randall, stressed the widespread depression and unemployment and
claimed as one of the bill’s most important effects “the relief it will give to the laboring classes of the community.”

In the course of his remarks, Lehman used currently familiar arguments in justifying the increased public debt his policy would entail. For how could the whole society be at a loss, when the debt “would still circulate among the members of the same body?”

Stormy Representative William Duane, in his report on the depression, offered internal improvements as his only suggestion on the state level for relieving the depression. The expenditures would pay labor and go into active circulation. He also suggested that the low prices of labor offered the government a good opportunity to launch construction projects.

The only vocal opponent of the bill was Representative Jarrett, who asked why the Philadelphians who wanted the bill and were so eager for internal improvements did not invest their own ample capital in private improvement projects?
³

Pennsylvania’s Governor Joseph Hiester, opposed, as was Duane, to inconvertible paper money, suggested public improvements as a remedy to the “stagnation of trade and business,” and, in his message at the end of 1821, attributed part of the recovery to employment furnished by the public improvements that the state had recently carried out.
⁴
George Mifflin, a leading Pennsylvania politician, wrote that internal improvement was the only lever that could lift the state to recovery.
⁵

The New Jersey legislature adopted, in January, 1820, a resolution favoring the construction of a Delaware and Raritan Canal. The sponsors, supported by the
Times
(New Brunswick), urged that dormant capital would be put to work, and agricultural depression as well as unemployment would be relieved. The project never began because of insufficient subscription of funds.
⁶