The Panic of 1819 (31 page)

In Delaware, the restrictionist forces kept up a running fight with the expansionists and advocates of relief legislation during the 1819 and 1820 sessions. The restrictionists made their first move in the House upon submission of the report of the Brinckle Committee to consider the state of the paper currency. Representative Martin W. Bates of Kent County moved to reject that part of the committee’s report which declared it inexpedient to compel the banks to resume specie payment. Bates’s motion carried the House by one vote and had the support of Representative Henry Brinckle, himself, but of no one else on the committee.
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The House had not yet passed a compulsory resumption bill, however. In the next session, Brinckle introduced a resolution to establish a committee to introduce the required bill.
²⁰
Brinckle’s bill passed numerous tests in the House, albeit by one vote, but the Speaker of the House took the unusual step, on final passage, of personally voting nay, and thus blocking the resolution by a nine-to-nine tie.

In Maryland a leading expression of hard money sentiment was a citizens’ meeting at Elkton, in the extreme northeastern end of the state, referred to previously. Not only did the “farmers and mechanics” of Cecil County pledge themselves to refuse to take the notes of nonspecie-paying banks but they proceeded to denounce the banks and call for strict laws to compel specie payment.
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They “viewed with abhorrence” the alarming increase of “fictitious capital” furnished by banks, they assigned the principal causes of the “decline of agricultural, mercantile, and mechanical interests” to the banks, and they pledged themselves not to vote for any candidate that would not pledge to vote to compel specie payment by the banks. The meeting also passed resolutions of gratitude to Hezekiah Niles, editor of
Niles’ Weekly Register
, and to the late State Representative Matthew Pearce, for their staunch anti-bank leadership.
²²
The resolutions were widely reprinted throughout Maryland and also in the
Niles’ Weekly Register
. They were denounced in the Baltimore
Federal Gazette
by its editor, William Gwynn, as slanderous; Gwynn charged that the citizens had been duped by Niles. Niles quickly retorted that Gwynn was himself a bank director.
²³

Niles by no means advocated complete abolition of bank paper, however. His suggested remedies for the financial troubles: (1) cease granting corporate charters to banks; (2) make bank stockholders fully liable; and (3) enforce payment of all specie demands.
²⁴

The Maryland hard money advocates did not succeed in tightening the laws against banks not redeeming in specie, but they succeeded in blocking any action for monetary expansion by the legislature.

One of the leading bank restrictionists of the period was Daniel Raymond, a Baltimore lawyer, who in 1820 wrote
Thoughts on Political Economy
, the first systematic treatise on economics published in the United States.
²⁵
Raymond set forth a virtual 100 percent specie-reserve position on banking. Bank notes, he maintained, should be confined to bank capital. Raymond criticized the assertion of Adam Smith and Alexander Hamilton (whom he otherwise greatly revered) that bank notes added to the national capital in so far as they substituted for, and economized on, specie.
²⁶
In reply, he cited David Hume that “in proportion as money is increased in quantity, it must be depreciated in value.” An issue of paper money therefore had the same effect as debasing the coinage. The increase in price raised the prices of domestic goods in export markets and caused an unfavorable balance of trade. Bank credit also promoted extravagant speculation. Ideally, Raymond believed that the federal government should eliminate bank paper entirely and supply the country with a national paper fully (100 percent) representative of specie.
²⁷
If this could not be accomplished, then Raymond suggested that banks be subjected to government control. Government would have a monopoly on the manufacture of paper, which it would give to banks, while regulating the maximum amount that they could lend in proportion to their capital. If this plan were not adopted, Raymond’s third choice was government’s taxing bank profits above the going rate of interest, thus eliminating the motive for increasing bank paper.

Another advocate of 100 percent reserve, signing himself “A Farmer,” was asked, in the course of a debate in the pages of the
National Intelligencer
, by a “Brother Farmer”: What would become of the farmers if the banks were annihilated? “Farmer” answered that they would no longer have debts or bankruptcies and that their income would then be in undepreciated specie.
²⁸
Joining in the antibank sentiments, “A Stockholder” hailed the current credit liquidation and hoped that the purification process would continue until all banks were eliminated.
²⁹

In the District of Columbia there were proposals to consolidate the three banks of the district into one bank. These proposals were not adopted, however. Typical of the attacks upon it was one by “Nicholas Dumbfish,” who assailed the consolidation as assisting “in perpetuating this wretched system of paper, which, if left to itself, will expire, whether by its own limitation or by the total and irretrievable loss of public confidence.” Better to let these institutions die a natural death.
³⁰

New York was one of the main centers of monetary restrictionist sentiment. Typical was the famous
Address of the Society of Tammany to its Absent Members
, which circulated throughout the country. The report was written by John Woodward, and among its signers were the Grand Sachem of Tammany (then as now in political rule of New York County), Clarkson Crolius, and secretary James S. Martin.
³¹
The
Address
frankly lambasted banks as being “poisonous.” In particular, it attacked bank loans to agriculture. Banks might be useful in rapidly liquidating commercial transactions, but could only bring ruin to agriculture. The
Address
recommended total abolition of bank loans to agriculture, as well as the forfeiting of the
charters of any banks refusing specie payment. The Society of Tammany itself, however, when passing recommendations for remedies of the depression a week later, omitted banking from the list.
³²

The Tammany
Address
was widely circulated and considered, and drew comments and letters from many famous statesmen. James Madison, for example, wrote to Crolius praising the report. He declared that even when banks restricted their operations to temporary loans to persons in active business, promising quick returns, they were likely to be harmful. There was no doubt of the mischief involved in banks’ lending indiscriminately and at long term.
³³

One of the leading figures of New York State, Judge William Peter Van Ness, pseudonymously published a pamphlet advancing two restrictions on banks: (1) they may discount no “accommodation paper,” i.e., simple loans that were not self-liquidating in the course of active trade; and (2) that they grant no renewals of loans.
³⁴
Van Ness reasoned that failure to follow this rule had caused the depression; for when a bank loaned so as to
constitute
, rather than merely
supplement
, the capital of a merchant, it thereby sponsored “adventurers” rather than sober businessmen. Accommodation paper, furthermore, was created for the sole purpose of being discounted, whereas “business paper” arose from the actual sale of a good.
³⁵
Van Ness believed that the Bank of the United States could aid greatly in furthering such a program.

The New York City press had largely restrictionist views. The New York
American
concluded that the true remedies for the depression were: “The gradual . . . but flexible reduction of bank discounts, refusing to incorporate any new institutions, compelling
those which exist . . . to redeem their notes in specie . . . or forfeit their charter.”
³⁶

One unique approach to the monetary problem appeared as an anonymous pamphlet on currency and credit.
³⁷
“Seventy-Six” attacked paper and bank credit. He was unique in advocating a
grain
standard instead of a specie standard. He argued that grain must really be the best money since people resorted to barter in grain as a last ditch measure.

A significant report on the New York situation was delivered by Assemblyman Michael Ulshoeffer, from New York City, of the Committee on Currency.
³⁸
Ulshoeffer’s task was to investigate remedies for the disordered currency. As he explained, “the great object in view is that the various banks should redeem their notes promptly in specie, and that such notes should pass at their par value in every part of the state.” The enormous banking capital in the state should be reduced, he demanded, and only a vast retrenchment in the paper money supply, and its prompt redemption, would effectively restore paper to par throughout the state. It was true, he conceded, that public opinion governed the value of all paper money, and that the public must be trusted to distinguish between good and unsound banks. Yet, laws might aid public opinion and restore public confidence. The state banks, he charged, had refused to redeem their notes, had kept their offices closed, and had placed all manner of obstacles in the path of redemption, while continuing to lend and circulate their notes. Therefore, Ulshoeffer recommended that the state treasurer not receive notes of any bank not promptly redeeming in specie, or not passing at par in the principal cities.

Governor De Witt Clinton, in his message opening the 1819 session of the legislature, implicitly called for an end to new bank charters for the present, indicating that the multiplication of banks was one of the main causes of the current depression, and stating that
he had always been opposed to this expansion.
³⁹
Clinton charged that investing banks with the power to coin money instead of issuing paper would be less pernicious, since at least the coins would have intrinsic value. Taking this section of the Governor’s speech as a point of departure, the Senate and Assembly appointed a Joint Committee on the part of the Governor’s speech dealing with currency. The report of Chairman David Allen, of the Eastern district, concluded it inexpedient to grant any more bank charters.
⁴⁰
The Allen Report particularly attacked overextension of banking as one of the major causes of the depression. The banks were all right when confined to commercial centers, where they invigorated trade. But banks overextended when they began to establish themselves in remote agricultural areas, emitting “excessive issues of bank notes without the means of redeeming them,” and the depreciation of their notes.
⁴¹

One of the most astute writers in the press of the period was “Senex,” who had his own solution for the problem of the country banks in New York.
⁴²
He explained that pernicious effects of country banks’ overissue stemmed from their having opened accounts with sound city banks, the latter thus assuming the liabilities of the former. After accepting country bank notes on deposit, the city banks felt bound to redeem the country notes in specie, both from want of foresight and out of the desire to please their customers. If they had not done so, the country notes would have circulated only in their local areas. The remedy was simple: the city banks should refuse to support these worthless notes. This would “reduce the
amount of floating paper money by substituting metallic currency in their place.”

There was no great need in New York for legislative action to enforce specie payment, since it had been largely taken care of in the 1818 session, before the panic had started. New York had then passed a bill compelling any bank to pay its notes in specie or Bank of United States notes, or suffer a payment of penalty interest to the noteholder. The strength of the proponents was seen in their defeating, by a two-to-one margin, Senator Martin Van Buren’s attempt to vitiate the bill almost completely by exempting notes already in existence from its provisions. The legislature, in the same session, also prohibited any private, unchartered banking whatsoever, whether for purpose of note issue, deposit, or discount.

The most dramatic bank crisis in New York City during the depression was the failure of Jacob Barker’s Exchange Bank, a private bank of unorthodox principles which had been established in New York City, a stronghold of financial conservatism. Barker had secured an exemption for three years from the legislative ban on private banking, but he went insolvent as soon as the panic arrived.
⁴³
He was moved to pen a rather remarkable apologia for his actions.
⁴⁴
Barker’s pamphlet depicted a virtual morality play. His bank was begun after the war as a humanitarian gesture, doing its business mainly “with mechanics and residents of the neighboring counties, who were unable to obtain accommodations from other banks.” Barker’s rivals, the corporate banks, were angry because of this benevolence and conspired to wreck the bank. Barker was able to withstand all the wicked maneuvers, until pressure for redemption somehow built up from various sources, and he was forced to suspend specie operations, which in New York meant to go out of business.

A rebuttal pamphlet, printed anonymously, put its finger on a common point of restrictionist attack: small denomination notes.
⁴⁵
“Plain Sense” pointed out that Barker’s notes were overissued and,
consequently, were now exchanging at a 45 percent discount. Particularly evil was small note circulation, and Barker’s Bank was especially active in issuing small notes, which circulated among the poorer classes and “increase the change in favor of the banker” through destruction, accidents, etc. Furthermore, such people accepted the notes, even when depreciated, out of ignorance or necessity. The author advocated that banks be prohibited from issuing notes under $20. Such prohibition would restrict the area of their circulation; “notes would constantly be flowing into the hands of men having large capitals, and engaged in extensive transactions, who would return them into the bank for payment when they came into their hands.” The public would then be safe, and the banker would have to confine himself to fair profits “arising from the employment of his real capital.”