Notwithstanding the great importations from Europe which under ordinary conditions would have counterbalanced the exports, the exchanges soon turned in favor of the United States. Before the close of 1816 specie in considerable quantities began to flow into the country. Canada, being nearest, felt the drain first, and suffered much inconvenience from it; but during the summer of 1816 and 1817 Europe also shipped much specie to America. Every ship brought some amount, until the export began to affect the Bank of England, which at last found its bullion diminishing with alarming rapidity. The returns showed a drain beginning in July or August, 1817, when the Bank of England held £11,668,000, until August, 1819, when the supply was reduced to £3,595,000; and in the interval a commercial crisis, with a general destruction of credit, occurred. The reaction could not fail in the end to affect America as it affected England, but the first result was stimulating beyond all previous experience. In England the drain of specie embarrassed government in returning to specie payments. In the United States the influx of specie made the return easy, if not necessary.
The recovery of internal exchanges kept pace with the influx of specie. At Boston, July 27, 1816, United States six-per-cent bonds were quoted at eighty-five, and Treasury notes at ninety-four to ninety-four and one-half; at New York six-per-cents stood at ninety, and Treasury notes at par; in Philadelphia six-per-cents were worth ninety-eight, and Treasury notes one hundred and seven; in Baltimore six-per-cents were selling at one hundred and two, and Treasury notes at one hundred and twelve. During the next five months the recovery was steady and rapid. The banks of New York, September 26, began to cash their one-dollar notes, thus relieving the community from the annoyance of fractional currency. October 26 the six-per-cents stood at ninety-two in Boston, at ninety-three and one-half in New York, at ninety-eight in Philadelphia, and at one hundred and one and one-half in Baltimore. November 28 they sold at ninety-six in Boston; November 30 they sold at ninety-six and one-quarter in New York, at one hundred and one and one-half in Philadelphia, and at one hundred and five in Baltimore. January 1, 1817, the Treasury resumed payments at Boston in Boston money, and no further discredit attached to government securities.
The banks of the Middle States were less disposed than the government to hasten the return of specie payments. In order to do so, they were obliged to contract their circulation and discounts to an extent that would have been unendurable in any time but one of great prosperity; and only the threats of Dallas overcame their reluctance, even under most favorable conditions. Both Dallas and the President were irritated by their slowness.[139] July 22, 1816, the Secretary of the Treasury issued a circular warning them that, at whatever cost, the Treasury must carry into effect the order of Congress to collect the revenue, after Feb. 20, 1817, only in specie or its equivalent. “The banks in the States to the South,” he said,[140] “and to the west of Maryland, are ready and willing, it is believed, to co-operate in the same measure. The objection, or the obstacle to the measure, principally rests with the banks of the Middle States.” Dallas invited them to assist the Treasury in resuming specie payments with the least possible delay; and accordingly the banks of the Middle States held a convention at Philadelphia, August 6, to consider their course.
This convention, on discussing the possibility of resumption, agreed that the banks needed more time than the government was disposed to allow. Credit had been necessarily expanded by the unusual scale of commerce and enterprise. So sudden and violent a contraction as was required for specie payments could not fail to distress the public, and might cause great suffering. Yet in some degree the new United States Bank could relieve this pressure; and therefore the resumption should not be attempted by the State banks until the National Bank should be fairly opened and ready to begin its discounts. The State banks in convention foresaw, or imagined, that the United States Bank could not begin operations so early as Feb. 20, 1817, and they declined to risk resumption without its aid. Acting on this impression, they met Dallas’s urgency by a formal recommendation that their banks should begin to pay specie, not on the 20th of February, but on the first Monday of July, 1817.
This decision, though unsatisfactory to Dallas and the President, could not be considered unreasonable. Credit was expanded beyond the limit of safety, and the government was largely responsible for the expansion. Many of the State banks were probably unsound from the first, and needed careful management. Between 1810 and 1830, on a total capital of one hundred and forty millions, the bank failures amounted to thirty millions, or more than one fifth of the whole.[141] In Pennsylvania the country banks reduced their issues from $4,756,000 in November, 1816, to $1,318,000 in November, 1819. The latter moment was one of extreme depression, but the former was probably not that of the greatest expansion. When the banks of the Middle States held their convention, Aug. 6, 1816, contraction had already begun, and steadily continued, while specie flowed into the country to supply a foundation for bank paper. Under such circumstances the banks asked no extravagant favor in recommending that eleven months, instead of seven, should be allowed for resumption.
Dallas was not disposed to concede this favor. Having at last the necessary machinery for controlling the State banks, he used it with the same vigor that marked all his acts. No sooner had the convention announced its unwillingness to co-operate with the Treasury in executing the order of Congress, than Dallas issued instructions, August 16,[142] hastening the preparations for opening the National Bank as early as Jan. 1, 1817. Soon afterward, September 12, he renewed his notice that the notes of suspended banks would be rejected by the Treasury after Feb. 20, 1817.
The Bank subscription was filled in August, a deficit of three million dollars being taken by Stephen Girard in a single mass.[143] In October the board of directors was chosen by the shareholders, and in November the directors met and elected as President the former Secretary of the Navy, William Jones. One of their first acts was much debated, and was strongly opposed in the board of directors by J. J. Astor. They sent John Sergeant, of Philadelphia, abroad with authority to purchase some millions of bullion; and his mission was calculated to impress on the public the conviction that specie payments were to be resumed as soon as the Bank could open its doors.
Hurried by Dallas, the Bank actually began its operations in January, 1817, and under the double pressure from the Treasury the State banks had no choice but to yield. Another meeting was held at Philadelphia, February 1, consisting of delegates from the banks of New York, Philadelphia, Baltimore, and Richmond. The convention entered into a compact with the Secretary of the Treasury to resume payments, on certain conditions, at the day fixed by Congress. The compact was carried into effect February 20, a few days before the close of Madison’s Presidency. Its success was magical. In New York, at ten o’clock on the morning of February 20, specie was at two and one half per cent premium. The banks opened their doors, and in half an hour all was once more regular and normal.
Thus the worst financial evil of the war was removed within two years after the proclamation of peace. A debt of about one hundred and thirty millions remained; but the people which only twenty years before had shrunk with fear and disgust from a debt of eighty millions, gave scarcely a thought in 1816 to their funded obligations. The difference between the two periods was not so much economical as political. Population and wealth had increased, but the experience of the people had advanced more rapidly than their numbers or capital. In measuring the political movement shrewd judges might easily err, for the elections of 1816 showed little apparent change in parties; but in truth parties had outgrown their principles, and in politics, as in finance, the close of Madison’s Administration obliterated old distinctions.
Neither party admitted the abandonment of its dogmas. The New York election in the spring of 1816 showed no considerable change in votes. In 1810 Governor Tompkins was elected by ten thousand majority; even in the dark days of 1813 he had a majority of thirty-six hundred; in 1816, notwithstanding his popularity and the success of his war administration, his majority was less than seven thousand. In Massachusetts John Brooks, who succeeded Governor Strong as candidate of the Federalist party, received forty-nine thousand five hundred votes, while Samuel Dexter received forty-seven thousand four hundred. Six years before, in 1810, the Republican candidate, Elbridge Gerry, had received more than forty-six thousand five hundred, and Governor Strong had polled only forty-four thousand. Apparently the Republicans had lost ground in Massachusetts since 1810. In Connecticut, where the election turned on church issues, the result was somewhat different. The Anglican church, a small body but rich and influential, strongly Federalist in politics and conservative in character, joined the Democrats to overthrow the reign of the Congregational clergy. Oliver Wolcott, a Federalist who supported the war, was their candidate; and the combination nearly carried the State. Wolcott received about ten thousand two hundred votes; his Federalist opponent was elected by eleven thousand three hundred and seventy votes. The Federalists also carried Rhode Island, once a strongly Democratic State, and seemed socially as well as politically to be little affected by their many mistakes and misfortunes.