William Gouge,
A Short History

Of Banking from 1819-20 to 1820-21.

Appended to the report of the committee of the Senate of Pennsylvania, are a number of questions which were propounded to members of the Legislature, together with the answers which were given  From these answers we have formed the following table of the price of the best improved land in Pennsylvania, at three different periods  The second column gives the price the land bore in the height of the speculation, which was in different counties in different years, as the Banks extended their operations into them.

The official valuation of real and personal property in the State of New York, exhibits an equally striking fall  It was, in63

1818, $314, 913, 695
1819, 281, 862,   793
1820, 256, 603, 300

The depression of prices continued throughout the year 1820, and, though money was abundant with retired capitalists, the pressure on the great body of industrious people was very severe.

"Our difficulties in commerce," said a director of the United States' Bank, writing to a friend in England, "continue without abatement  Men in business are like patients in the last stage of consumption, hoping for a favorable change, but growing worse every day till they expire  Dismal as are the prospects on your side of the water, they are worse here  You have some regular and profitable trade – we have none  It is all scamper and hap-hazard."  The director then states that in former times he would, without hesitation, have trusted some men among his customers with goods to the amount of 100,000 pounds sterling;  but he adds, "now I do not know the persons doing business; and there is not one among them whose order I would take for 1,000 pounds  What a difference !  A long continuance of distresses in the commercial world has had a bad effect on the morality of the country  The vast number of failures takes away the odium  Men fail in parties for convenience;  and the barriers of honesty are broken down by a perpetual legislation suited to the condition of insolvent debtors  We have now no imprisonment for debt  Credit is become very rare, as you may well imagine, for we have nothing to depend upon but a man's honesty  Besides our commercial distresses, we are suffering great alarm in this city (Philadelphia) from incendiaries, who have succeeded in setting fire to a great number of buildings  On Sunday evening our theatre was entirely destroyed.

"Houses which rented for 1,200 dollars, now rent for 450 dollars  Fuel which cost 12 dollars, now costs 5 dollars: flur which was 10 and 11 dollars, is now 4;  beef 25 cents, now 8 cents: other things in proportion  It is thus true we now pay less for these necessaries, but we can make no money  The farmer is become as poor as a rat: the labor of the farm costs him more than the produce is worth  He cannot pay the storekeeper, and the storekeeper cannot pay the merchant.

"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."64

"Money is plenty," says Mr. Niles, on the 4th of March  "The six per cent. stocks are at 103 to 104;  but there is little use for money in the hands of those who do not owe it  Hence it has a sluggish currency, and those who have it do not know what to do with it for themselves, and are afraid to trust it to others."

On the 15th of April, the same writer says–

"It has be come a serious affair to the laboring man to purchase himself a new garment – his wages, on an average, do not purchase him half as much as they did, and he is continually uncertain as to obtaining even that  Many of the mechanical professions have equally declined: as an instance, though our population is one-half greater than it was ten years ago, it is certainly a fact that the printing of books is not now half so extensive as it was then  The desire to read is not lessened, but the means of purchasing are denied – the most common school books are a drug  Hatters, shoemakers, and tailors, and even blacksmiths, whose work seemed to be indispensable, have lost, in general, much of their former businesses – from a fourth to one-half  This is the result of necessity, and those who might purchase, abstain, in looking to a fearful future."

On the 16th of September, he says–

"Five years ago all the large stores in Market street, &c., Baltimore, were cut, into two, and then there was not enough of them;  and a dwelling house could hardly be had – if a man talked of moving, fifty were applying for the property  The stores have resumed their old shapes, and dwelling houses are abundant  I believe we have 10,000 less inhabitants than we had in 1815;  and, by calculation, I have concluded that the property on Market street at this time, if all on rent, would produce a sum less by $250,000 a year, than it would have produced as rent in that year.

"Desire no longer presses on enjoyment with the laboring classes, but necessity presses on necessity;  and, one by one, they give up their enjoyments which they hitherto delighted to indulge themselves in  This is evident to every person who will look at society  The laboring people can not get much money, and therefore cannot spend much  The average price of wheat is hardly more than fifty cents a bushel, and the farmer cannot buy many luxuries at that rate: a mechanic is hardly half his time employed, or at reduced wages, and must therefore limit his expenditure."

It was natural that, in this condition of things, the public mind should be employed on projects for alleviating distress, if not for preventing its recurrence.

One measure that was suggested, was the requiring of cash payment of duties  This would have been beneficial, insomuch as it would have lopped off one of the branches of the super-extended credit system, but it would have afforded no immediate relief  An effort was made in Congress to carry through a measure of this kind, but it was not successful.

Another effort, which was attended with no better success, was to restrict sales by auction  There is no cause to regret that this effort did not succeed  The only way in which the value of many kinds of property could be realized in this season of distress, was by sales by auctions, and restrictions on this business would have increased the sufferings of the public.

A large portion of society were very anxious that a bankrupt law should be passed, and it may be doubted if the mercantile part of any community ever stood more in need of relief  But the bill which was reported to Congress was modelled on the English system, and not adapted to the state of things in America  It might, if it had been adopted, have afforded relief to many worthy men;  but in its general operation it would probably have been productive of great evils  It was rejected by a decided majority.

The measure from which most was hoped, and which was pushed with most vigor and most perseverance, was an increase of the duty on imports  The dullness of business, the lowness of prices, and the want of employment, which were produced by the re-action of the Banking system, were all urged as reasons why Congress should afford adequate "protection to domestic industry."

It is no part of our plan to discuss the tariff policy  But it belongs to the history of Banking, to state that the raising of the duties on imports, to a height which now threatens to convulse if not to rend our Union, was one of the consequences of the great re-action of 1819  As the effects of the re-action were felt for several years, the advocates of the restrictive system had full leisure for applying all the arguments in support of their favorite policy, which they could derive from the continued lowness of prices, dullness of business, and want of employment.

The evils produced by the system of paper money and moneyed corporations, are of such a nature that they can not be remedied by acts of legislation  When they come they must be endured  If we will have the system, we must bear its consequences  But there was one measure which, as it might have alleviated the distress, we have sometimes wondered was not adopted: We have wondered it was not adopted, because it is a measure which has been adopted in other countries, and in our own country at other times  We mean an equitable adjustment of the affairs of debtor and creditor  When the South Sea bubble bursted, the British Parliament saw that to require a literal fulfilment of the obligations which were affected by that stock-jobbing concern, would be to give the getters up of that scheme all the property of their miserable dupes  It therefore, in some cases, reduced the amount of money to be paid, as much as nine-tenths  During the Revolutionary War, "scales of the depreciation" of continental money were from time to time published by the Legislature, by which the courts were governed in enforcing such contracts as were submitted to adjudication.

The great Banking bubble of America was the same in principle as the South Sea bubble, but of longer continuance, and involved in it the fortunes of the whole community  But nothing like an equitable adjustment of the affairs of debtor and creditor was attempted  An obligation to pay 10,000 dollars entered into in 1816 or 1818, when the current dollar was in some parts of the country worth perhaps but 50 cents in silver, was enforced according to the strictness of the letter, in 1819 and 1820, when the current dollar was of equal value with the legal dollar, and worth one hundred cents in silver.

It is an awful thing to change the money standard of a country: but it is equally awful to refuse to recognize such a change, after it has actually been made  Effecting an equitable adjustment of the affairs of debtor and creditor, by a legislative or a judicial recognition of the practical changes which had been made in the standard of value, would not have "impaired the obligation of contracts."  Both debtor and creditor, when they entered into the contract, had the "current" dollar in view  The disorder was, however, so general, that an equitable adjustment of contracts would have been a work of great difficulty, if not of impossibility  Perhaps the courts, looking forward to the operations of future years, acted wisely in regarding the dollar as a fixed quantity, though it was, in fact, during these years, a quantity that was always changing.


63.   Niles, December 24th, 1821.