William Gouge,
A Short History

Of Banking from 1820-21 to 1825-26.

To tell of all the expansions and contractions that have occurred since the first grand curtailment was made by the United States' Bank, would require a large volume.  Our country is so extensive, and the causes that affect Bank medium are so various, that, while one part of the Union is suffering all the evils of scarcity of money, another may be in the height of that apparent prosperity which is produced by an increasing paper currency.  It is by no means unusual for a contraction to begin on the sea-board, before the full effects of the previous expansion have been felt in the interior;  or for expansions to recommence on the sea board, soon after the inland Banks find the necessity of restricting their issues.

Each Bank has its own sphere of operation, within which there may be contractions and expansions not sensibly affecting any but those within that sphere.  But, from desire to increase their profits, the different Banks not unfrequently encroach on each other's spheres, by which more extensive disorders are produced.  The action of the Banks among themselves has been compared to that of so many drunken men passing along the street together, occasionally supporting one another, and occasionally knocking one another down.  Their motion is vacillating, tottering.  It is seldom in a straight line.

An attempt to enumerate all the vibrations of Bank medium, would therefore be idle.  But, from a careful inspection of files of the United States Gazette for 1821 and 1822, and of the Philadelphia Gazette for subsequent years, we are able to give the following view of variations of the money market, embracing all the most important expansions and contractions.

1821.  Business dull in the beginning of the year.  The effects of an expansion apparently commenced in the Spring, begin to be felt in June or July, and by October the spirit of speculation is tolerably active.

1822.  A reaction commences in May, the effects of which are felt through the rest of the year.

1823.  The Bank of the United States receives the notes of all its branches, and begins to extend its operations.

1824.  The Banks increase their issues, and the spirit of speculation becomes excited.

1825.  The consequences of the great reaction of 1818-19 are not over in the interior: but on the seaboard the effects of the expansion, begun in 1823 and continued through 1824, are felt in the rise of property and general briskness of business.  In July or August a violent reaction commences.

1826.  The effects of the reaction are felt through the greater part of the year.

1827.  Money plenty.  The United States' Bank commences issuing Branch drafts for small amounts.

1828.  Sudden and alarming scarcity of money in May, and again in September.

1829.  Money is scarce till July.  It afterwards becomes plenty.

1830.  Money plenty.

1831.  Money very plenty till October.  Then a reaction begins.

1832.  Money scarce.  Towards the close of the year, the pressure abates in Philadelphia: but it is not apparently diminished in some other parts of the country.

In the Middle States are placed the United States' Bank, and some of its most important branches, and here are collected and disbursed the greater part of the public revenues.  The heart of the Banking system is here, and while it is affected, in a greater or less degree, by whatever affects the extremities, it, in its turn, has a powerful operation on the remote parts of the Union.

In the years 1820 and 1821, the Banks of the Middle States settled down into what Mr. Niles calls a state of regularity.  The notes of many of them became mere broker's merchandise, and the discount on those which remained current, did not exceed the cost of transporting specie from the place where they were issued to the place where they were circulated.

A fair field was then first opened for the credit operations of the Bank of the United States.  But by this time confidence was destroyed, and the spirit of enterprize was chilled.  "There is now," says Mr. Niles, on the 3d of February, 1821, "little demand for money, except to answer the current purposes of life, and pay old debts, for either of which it is difficult enough to get, though apparently abundant enough."  The capitalists of New York made great complaints in March of the difficulty they found in investing their funds: though at this very time, the country papers were teeming with advertisements by the sheriff;  and three hundred and fifty persons in Baltimore made application, in the month of May, for the benefit of the insolvent laws of Maryland.  A tradesman in Philadelphia advertised for a shop boy, and fifty applications were made for the place in three days.80  The building of a new ship excited quite a sensation, as something out of the common order of things.  The fear of moneyed men to embark in new enterprizes, left many laboring people without employment.  Solvent men had little disposition to borrow, for they could not tell if prices had yet reached their lowest limit, or form a satisfactory conclusion as to the state of affairs in coming years.

80   See United States Gazette of June 20th.

In the interior of Pennsylvania, the people were clamorous for the establishment of a State Loan Office.  Nor is this to be wondered at.  In the month of June, the Sheriff of Bedford filled two newspaper columns and a half with his advertisements: and the Sheriff of Berks offered for sale 3000 acres of land, besides town lots.  In August, fifty-seven farms were advertised for sale by the Sheriff of Westmoreland, sixty-three pieces of property by the Sheriff of Northampton, and thirty-seven by the Sheriff of Mifflin.  In October, the Sheriff of Cumberland advertised for sale 2,380 acres of land, besides twelve town lots with hand some improvements: and in December, the Sheriff of Berks offered for sale the property of forty persons.  From the state of things in six of the fifty-two counties of Pennsylvania, the reader may form some idea of the condition of affairs generally.

In April or May, 1821, as nearly as can be ascertained, the city Banks began to expand, and the effects of this expansion were sensibly felt in August, and still more sensibly in October.  Tired of a protracted state of inactivity, many men began to employ their capitals and their credit, at a risk rather than on calculation.  For some months things wore a pleasing aspect: but in April and May, 1822, the prospect was again clouded over.  Some kinds of imported goods fell 15 per cent. in Philadelphia;  and United States' Bank stock, which had been held at 115 in in February, was sold in New York on the first of May at 102, and fell before night to 98½.

Other kinds of public securities experienced a depreciation, but the fall in United States' Bank stock being greatest, naturally attracted most attention.  It was attributed by some to the machinations of brokers, and by others to a loan of five millions made by the Bank to the Government, and to the quantity of stock hypothecated to the different Banks and insurance offices in New York and other places.

It is certain that the evils produced by paper money Banks, are greatly increased by the dealings of these institutions with Government.  The transactions are so large as usually to derange the regular train of mercantile operations.  The heavy deposits of Government enable the Banks, at times, to extend their discounts further than is proper.  Their payment of these deposits, and the making of heavy loans to Government, usually compel them to curtail their accommodations to men of business.

But it is of less moment for us to know what particular operations of the Banks caused the sufferings of 1822, than to know that these sufferings were the consequences of over-trading produced by over-banking.  That there was an excess of paper issues in part of 1821 and 1822, is evident from the fact that, according to the official returns, the exports of specie in the year ending September 30th, 1822, amounted to 10,781,933 dollars, and those of bullion to 28,248, while the imports of specie for the same period amounted to only 2,958,402 dollars, and those of bullion to 411,444.  A Boston paper says that from the 1st of January to the 1st of June, 1822, the imports of specie into that port amounted to only 70,000 dollars, while the exports, in the same period, to the East Indies, Brazil, England, and Cuba, amounted to one million two hundred and five thousand five hundred and six dollars.  At one time in 1821, there were 2,434,000 dollars in specie in the vaults of the Boston Banks, and by June, 1822, this amount was reduced to 430,000.  In the same period, the specie in the vaults of the United States' Bank and its branches was reduced from 7,643,140 to 3,334,452 dollars.

On the 29th of June, Mr. Niles remarked that forty-two merchants of Boston had stopped payment within the period of a month;  and on the 3d of August, he made a quotation to the following effect from a Salem paper: "We regret to learn that failures continue to take place almost daily at Boston, some of them of persons extensively engaged in commerce.  We are informed that within the last two months, there have been more than eighty failures in that city.  The embarrassment, distress, and alarm, which such a state of things must necessarily produce, are indeed a serious calamity."  The amount of these failures, for the last two months, adds Mr. Niles, is said to be more than three millions of dollars.

There were also failures in New York, and many of the operative manufacturers of Philadelphia were deprived of employment.

Throughout the year business was very vacillating.  In the latter part of it, there appears to have been another sudden shock given to trade;  for it is mentioned in the United States Gazette of December 13th, that some species of cotton and woollen goods had fallen fifty per cent. in the course of a few weeks.

Bills on London, which were at 111½ a 112½, in February, 1822, were quoted in the Philadelphia Gazette May 14th, 1823, at 104½.  The true par being, according to Mr. Gallatin, seven per cent. above the nominal par, the foreign exchanges were decidedly in favor of the country.  A combination of causes compelled the Banks to be cautious this year in their operations.  The condition of things in the Southern and Western parts of the Union, prevented the United States' Bank from extending its dealings as far as it desired.  The Pennsylvania Banks felt the uncertainty of their fate.  The charters of many of them were about expiring, and applications for a renewal of them, made to the Legislature in the sessions of 1821-22, and 1822-23, had been defeated.  The city of New York was flooded with the notes of a number of small institutions in the country parts of that State, and of other States.  These notes, though they were not on a par with specie, constituted the principal medium of retail trade.

The Bank interest was very powerful in the Pennsylvania Legislature in the session of 1822-23; but the dominant party feared to pass a bill to extend the charters of the Banks of 1814, as it might have an unfavorable effect on the election for Governor in October.  When the election was over, the chief obstacle to the operations of the Banking interest was removed, and a bill was passed in March, 1824, for re-incorporating every one of the Banks of 1814 which had applied for a renewal of its charter.  About the same time, the Bank mania broke out afresh in some of the other States, and it seemed, in the latter part of 1824, and the beginning of 1825, as if the days of 1815 and 1816 were about returning in America, and those of the South Sea bubble in England.

The infatuation, if we may be permitted to call it by so mild a name, was most violent in New York.  The speculators of that city, not content with such privileges as their own Legislature could bestow, prevailed, by means of bonuses, on the Legislature of New Jersey to establish a string of small moneyed corporations along the shore of the North River;  and, in defiance of the statutes of Pennsylvania, took possession of coal lands within her limits, under the color of charters granted by another State.  Their own Legislature they besieged in every possible form.  During the session which commenced in January, 1825, application was made for charters for new Banking, Insurance, and other companies, with nominal capitals of the amount of fifty-two million dollars.

Money was never more abundant, if a judgment could be formed from subscriptions to the stock of such companies as succeeded in their applications for charters.  Three million dollars were subscribed in one day, in January, to the stock of the New Jersey Lombard and Protection Company, though its capital, as fixed by law, was only three hundred thousand dollars.  Nine million dollars were subscribed in April to the New York Water Works Company, and by some contrivance its script was raised in the market to thirty per cent. above par.  Thirteen millions were subscribed in May to the stock of the Delaware and Raritan Canal Company.  Between the 5th and the 16th of February, the stock of the New York Gas Company advanced 28 per cent., and was sold at 178.

It was not alone in dealings in the stocks of chartered companies that great activity prevailed.  More commercial business was said to have been done in Philadelphia, in the month of February, than in any one month of the preceding ten years.  The Banks were liberal in their discounts, and the spirit of speculation showed itself in various forms.

While the public mind was in this state, seven expresses arrived at Philadelphia from New York in one day (April 9th) with news of a great rise of prices in the markets of Liverpool and London.  The effect was electric.  Twenty seven cents were offered for Upland cotton, and refused, though the holders would, a week before, have been happy to obtain twenty cents.  Cotton yarn, No. 15, rose from 35 to 45 cents.  Muscovado sugars advanced a dollar a hundred.  St. Domingo coffee rose from 17½ to 21 cents a pound.  Quercitron bark rose from 27 dollars a ton to 35 dollars.  The rise in the prices of tobacco, drugs, and spices, was very considerable.

Every body was in haste to grow rich: and the cotton dealers were regarded with special envy.  It was currently rumored that such a man had made 20,000 dollars in one day;  such another, 30,000;  such another, 40,000, and such another 50,000.  Some firms, if reports were to be believed, had realized 100,000;  while the computed or prospective gains of others were swelled to nearly half a million.

In New York, the speculations were carried to a much greater extent than in Philadelphia;  and despatches sent to the South spread the infection through all that region.  The Charleston Patriot, to show the state of feeling, mentioned that "the same parcel of cotton had changed owners six or seven times within a week, without leaving the hands of the factor."  It was in this year, that the growing crop of corn was rooted up in some parts of the Southern States, to make room for new plantations of cotton.

The cotton mania continued to rage, with more or less violence, through the months of May and June.  But in July news was received of a decline of 3d. a pound in the price of cotton at Liverpool, and a pressure for money was soon felt in New York.  In the next month, the pressure increased, and between August and December, there were fifty failures in New York, and thirty in the Southern cities.  Towards the close of the year, the pressure for money in Boston was very alarming.  Exchange on England, which was at five per cent. in the spring, rose to ten per cent. in September.  New Orleans notes, which were at two or three per cent. discount at Philadelphia in the spring, fell on the 21st of September to fifteen per cent., and were quoted on the 28th of the same month, at fifty-six per cent. below par.  On the 4th of December, the same notes were quoted at only four per cent. discount, exhibiting a remarkable example of rise and fall in the space of a few months.

Many of the Banks were in great difficulties.  Several of them broke.  And such were the straits of the United States' Bank, that one of the directors talked publicly on the Exchange at Philadelphia of the expediency of suspending specie payments.

Mr. Biddle, the President of the United States' Bank, says,

"The fall of 1825 was probably the most disastrous period in the financial history of England.  It was then that the wild speculations81 in the American mines, and the still wilder speculations in American cottons, recoiled upon England, and spread over it extensive ruin.  In the midst of this suffering, it required little to produce a panic, and accordingly there ensued a state of dismay, which, for a time, threatened to involve all interests in confusion.  There was, probably, at no period of English history, so intense and general a distress as there was in December 1825.

"Now, the very same storm which thus broke on England, passed over this country a few weeks before: it was on the eve of producing precisely the same results;  and certainly I have never felt any uneasiness about the Banks of this country except on that occasion.  Just as the difficulties were commencing, the Government paid off, on the the 1st of October, a loan of seven millions, of which $3,366,761.64 were payable in Philadelphia.  The payment of this sum by the Bank, of course diminished its means for active business, and brought it largely in debt to the State Banks both of Philadelphia and New York.  It became, therefore, an object of extreme solicitude to prepare for the relief of the community, and provide for the danger which was obviously approaching.

"The first object of the Bank was to relieve itself from the debt which the payment of the seven millions threw upon it.  Accordingly, it began by making sales of its funded debt and Bank stock at New York, and Boston, and Philadelphia, amounting, in the month of October, to $1,828,210.19 in funded debt alone, and by husbanding all its means till it could place itself in a state of perfect security.

"By the first of November, the Bank was extricated from debt, and continued daily to strengthen itself.  In the midst of the difficulties of the community, two circumstances contributed to increase them: the one was a heavy demand for specie for the use of the British army in Canada;  the other was a similar demand for specie, to pay the instalments of a new Bank then recently established at New Orleans.  This want was to be supplied before any ease could be extended to the community, and it was pressing with extreme urgency.  The effect of it was to inspire a general distrust and alarm, and, by the middle of November, all the indications, which it was impossible to mistake, denoted an approaching panic, which would have been fatal to the country.  If the strength and wealth of England could not withstand such an alarm, its effects on this country would have been incalculable.  That moment seemed to me to be the very crisis of the country, to be met only by some decided and resolute step, to rally the confidence of the community.  In such a situation I did not hesitate on the course which my duty prescribed.  I went immediately to New York, where I sought the gentleman who was preparing to draw specie from the Banks of Philadelphia, in order to send it to New Orleans, and gave him drafts on that city.  These drafts were not given to protect the Bank itself, which was then a creditor of the Philadelphia Banks for more than the amount of them, but they were employed to arrest from these city Banks a drain which could not fail to embarrass them.  I then endeavored to ascertain the real state of things by separating the danger from the alarm, and having done so, on the 22d of November, the letter annexed was addressed to the Branch at New York, suggesting the propriety of increasing its loans.

"From this moment confidence revived, and the danger passed.  I then thought, and still think, that this measure, the increase of the loans of the Banks, in the face of an approaching panic, could alone have averted the same consequences, which, in a few days afterwards, were operating with such fatal effect upon England.  I have never doubted that the delay of a week would have been of infinite injury, and the prompt interposition of the Bank was the occasion of protecting the country from a general calamity."

It is very possible that the means taken by Mr. Biddle were the only ones by which a panic could be prevented;  but, what ought we think of a system by which the pecuniary salvation of the country is made to depend on one man's hurrying by night from Philadelphia to New York, to prevail on another man to accept drafts on New Orleans in place of specie? The establish-ment of a new Bank is, in the United States, an event of every day occurrence: and the business is so well understood, that the amount of specie required for such a purpose is very trifling.  What sum was wanted for the use of the British army in Canada, is not mentioned;  but as the British Government must have given an equivalent for it, it diminished, in the same amount, the demand for remittances to England.  If there had not been the two particular demands mentioned by Mr. Biddle, there would have been demands for some thing else.

There is what Mr. John Quincy Adams calls, "a galvanic sympathy" between the paper money Banks of different countries: and it is certainly no small objection to our present system that it makes us liable to be affected injuriously by every derangement in the currency, commercial concerns, or financial affairs of Great Britain.  So intimate and so manifold are the connections of the two countries, that an expansion or contraction never takes place in England, without being accompanied or followed by an expansion or contraction in the United States.  We have, also, expansions and contractions independent of those of Great Britain: but when the causes of the variations of Bank medium operate simultaneously in both countries, the effects are very striking.

The state of confidence between man and man, and the state of the currency in some parts of the Union, were not such as to admit of as great an increase of Bank medium in the United States as took place in England in 1824 and 1825.  The effects of the great reaction of 1818-19 were not yet over.  In Kentucky, society was in a state bordering on anarchy.  In Alabama and Tennessee, the paper of the local Banks was much below par.  Ohio, Indiana, Illinois, and Missouri had not recovered from the effects of the relief system.  The currencies of Georgia and North Carolina were very vacillating.  The city Banks of New York had for two years, beginning with the summer of 1823, been endeavoring to restrict the petty Banks of their neighborhood, and in so doing had limited their own circulation.  In New England there was a war between the allied Banks of Boston and the country Banks, which caused a great pressure for money in the Eastern States, in the month of May, or at the very time when there was so much commercial activity in the southern cities.  In the interior of Pennsylvania, the sheriffs had not yet got through the duty of selling the estates of those who had been made bankrupt by the operations of the years 1818 and 1819.82

While the country was in this condition, it was impossible for Banks maintaining specie payments to make any great addition to their issues.  In point of fact, the actual increase of Bank currency in 1824 and 1825, appears not to have been very great: but the state of affairs was not such as to admit of any increase of credit dealings, without jeoparding a great variety of interests.  It was owing to this, that, though the expansion was such as might under other circumstances have been regarded as inconsiderable, the effects of the necessary reaction were felt through the greater part of the year 1826, in a general dullness of business.  In the Southern States, the consequences were most trying, as the high price of cotton had led to an over extension of the culture of that article, and as the planters, encouraged by the demand for their staple, had plunged themselves in debt to support their style of living.  The manufacturers of cotton were, also, great sufferers.  Cotton cloth which it cost 18 cents a yard to import in 1825, was imported in the spring of 1826, at 13 cents.  It was said that of four thousand weavers employed in Philadelphia in 1825, not more than one thousand had employment in May 1826.

It must be admitted, however, that the reaction was attended with one good effect, and that was in checking the operations of the New York speculators.  Unaffected by all the disasters which the community were suffering, they made application to the Legislature, at the session commencing in January 1826, for charters for twenty-seven new Banks in the city of New York, with nominal capitals of 22,500,000 dollars, for thirty-seven new Banks in the other parts of the State, with nominal capitals of 13,250,000 dollars, for twenty-six other joint stock companies in the city of New York, with capitals of 14,350,000 dollars, and for thirty-three in other parts of the State, with capitals of 5,437,000 dollars, making in all 123 Banking and other joint stock companies, with nominal capitals of the amount of 55,537,000 dollars.  The Legislature having at its previous session incorporated twenty-two Banks and loan offices, and twenty-six insurance companies, prudently refused to extend the system any further for the present.

The wisdom of this course soon became manifest.  In April 1826, the Marble Manufacturing Company, a newly instituted, bond-issuing concern, became bankrupt.  This was followed in July by the bankruptcy of the Dundaff and New Hope Banks of Pennsylvania, the Jersey City Bank and Patterson Bank of New Jersey, the Green County Bank of New York, the United States' Lombard, the Franklin Manufacturing Company, the Hudson Insurance Company, and the New York Life Insurance Company; these were again followed, in August and September, by the bankruptcies of the New York Mount Hope Loan, the Sun Fire Insurance, the Greenwich Insurance, and the Protection Fire Insurance Company.

When an injunction was issued in the case of the Tradesman's Bank, a run commenced on all the Banks of the city of New York.  It is probable that if they had been exposed to such a run twelve months sooner, very disastrous consequences would have ensued.  But by this time the foreign demand for specie had abated.  The exports of gold and silver from the port of Philadelphia in the months of June and July were only 500,501 dollars, against 2,136,151 in the corresponding months of 1825.  Credit dealings having been diminished, and the amount of specie in the country having been increased, the New York City Banks were enabled to save themselves, and thereby to save all the Banks from Maine to Louisiana;  for a stoppage of payment by them, would have produced a run on all the Banks in the Union.

The bankruptcy of some of the New York moneyed corporations, revealed secrets to the public which led to a legal investigation, and as it is always the practice of the world to punish unsuccessful villainy, some of the concerned were severely dealt with.  Previous to passing sentence on them, Judge Edwards made following observations:

"During the trials which have taken place at the present term of this court, we have witnessed displays of depravity on the part of the agents of moneyed institutions of the most appalling nature.  As common as crimes are in all great cities, yet this community was not prepared to expect from the class of society to which the perpetrators of the crimes belonged, a burst of such iniquity.  Their offences have been characterized by breaches of official and personal confidence;  by a course of misrepresentation and deception systematically pursued, and by injurious and crafty devices which no ordinary prudence could guard against.  Nor was this all.  Among the actors in those scenes were some of the principal agents in the management of moneyed institutions, and they have been found actually combining and conspiring together for the accomplishment of their nefarious purposes.

"From combinations of men of so much talent, availing themselves of their high standing, it is not surprising that they should have swept society with the besom of destruction.  When crimes of such character, attended with such destructive consequences abound, it behooves the tribunals of justice to gather themselves up to meet the occasion, and to extend, as far as in them lies, the protecting arm of the law."

The court sentenced two of the persons who were convicted to imprisonment for two years, and two others for one year.  A writer in a New Hampshire paper, says, after briefly relating these facts– "In some of the other States, justice has too long slumbered.  The guilty have escaped with impunity, but the innocent and unsuspecting have been plundered without redress."


81   Senator James Fowler Simmons (1795-1864) of Rhode Island, in the Senate, Friday, December 18, 1857, recollecting:– "I happened to be in business that year, [1825] and profess to be acquainted with some of the causes which led to the revulsion in England then, and they are precisely the causes which have led to the present revulsion here.  The difference between the cases is, that England was then our debtor, now we are debtors to her.  The English speculated to a large extent in our great staples.  I recollect that at that time I bought on speculation, the only cotton which I ever bought to sell.  Knowing that I was engaged in purchasing sea island cotton for my own use, a cautious merchant, knowing the effect of appearing in the market as a speculator, offered me half the profits of the transaction if I would go into the market in Providence, and buy all the sea island cotton there.  I bought in the month of December, 1824, on his statement to me that it was lower than he had ever known it to be, in comparison with the short cotton, and there was news that the sea island crop was cut off by storms.  I paid twenty-seven cents a pound for the best of that cotton, and it was sold to a Savannah cotton factor to go back to Savannah, at seventy cents a pound, and he resold it to English speculators.  We made more than one hundred and thirty dollars a bale on it, and it went to England with a further profit added to that.  If anybody can find wilder speculation than this, I should like to see the instance.  England then bought more than she could pay for, and was in debt to us, but we did not experience any great trouble from that revulsion.  There is no trouble in any revulsion, except that you may lose part of your profits, if you are yourself out of debt."

82   The Sheriff of Adams County advertised thirty-three estates for sale in the month of May.  The Juniata Gazette, on one day of July, contained thirty-two advertisements by the Sheriff.  The Sheriff of Fayette, in the month of June, offered for sale 118 tracts of land, containing 45,000 acres, or one-eleventh part of the county.  Most of this was the property of one person.  In the same month the Sheriff of Bedford offered for sale twenty-three estates, and the Sheriff of Westmoreland, twenty-six.  In December, 48 estates, containing to ether 3342 acres of land, with farm houses, barns, grist mills, and other improvements, belonging to thirty-one different persons, were offered for sale by the Sheriff of Berks.