The Forgotten Man, and Other Essays

by William Graham Sumner

On August 18 the New York banks called a convention of banks to deliberate on resumption. The Philadelphia banks frustrated the proposition by refusing. A convention met in October but adjourned without action until April. On the 7th of April the New York banks had assets two and a half times their liabilities, excluding real estate, and were creditors of the Philadelphia banks for $1,200,000. They had reduced their liabilities from $25,400,000 on January 1, 1837 to $12,900,000 on January 1, 1838, and the foreign exchanges were favorable.

The bank convention met April 1, 1838, and voted by states to resume January 1, 1839, without precluding an earlier day. New York and Mississippi alone voted nay, the former because the date was too remote; the latter because it was too early. New England joined Philadelphia and Baltimore for the later day. Mr. Biddle published another letter in which he blamed the rigor of the contraction at New York; he wanted to remain “prepared to resume but not resuming,” and looked to Congress to do the work. The exchange between New York and Philadelphia was then four and a half per cent against the latter. The southwestern exchanges were growing worse. On May 1, the Philadelphia banks resolved to pay specie for demands under one dollar. The Bank of England engaged to send one million pounds in specie to support resumption, and did send one hundred thousand pounds, but then receded from the undertaking; its stock of specie was now very large and increasing. The New York banks resumed during the first week in May, the Boston and New England banks generally at the same time. Specie was coming into New York. On May 31 Congress repealed the specie circular, whereupon Mr. Biddle published another letter saying that since Congress had acted, he saw his way to resumption and would “coöperate.” The Bank had, at this time, over thirteen millions loaned on “bills receivable,” that is, on securities put in the teller’s drawer, as cash to replace cash taken out.

After the adjournment of Congress on July 9 there was a much better feeling, especially on account of the defeat of the sub-treasury bill, and on July 10, Governor Ritner of Pennsylvania published a proclamation requiring the banks to resume on August 13, and to pay and withdraw all notes under five dollars. On July 23 a bank convention composed of delegates from the middle states met at Philadelphia. It was agreed to resume on August 13. The Philadelphia banks were obliged to contract very suddenly and money was very dear there. As soon as they resumed there were demands on them from New York, exchange being against them. This caused excitement and indignation. The banks generally declared dividends as soon as they resumed. Elsewhere, here and in England, money was easy and the times rapidly improving. There was, however, a feverish and uncertain market for cotton. Biddle and Humphreys were carrying an immense stock, and buyers and sellers differed as to prices.

On December 10, 1838, Biddle published another letter to Adams in which he reviewed his policy of the last two years, and withdrew the Bank from all its former public activity. He says: “It abdicates its involuntary power.” He defended the cotton speculations, saying that he had saved the great staple of our country from being sacrificed, by introducing a new competitor into the market. Here then was a buyer who had gone into the market on purpose to “bull” some one else’s property. His fate could not be very doubtful. At this same time the Liverpool market was very dull and the spinners were curtailing their demands because the supply was under the control of speculators. It was true, as was asserted, that the crop was short, but the buyers took this for a speculator’s story, and, anticipating a break in the corner and a fall in price, they refused to buy. The speculation no doubt unduly depressed the price. The southwestern agents of the Bank of the United States were offering advances of from two to five cents above the market price to secure consignments to Biddle and Humphreys, and Mr. Jandon, because he had lost instead of winning confidence, was paying ruinous rates for money to carry on his operations.

During the winter most of the southern and western banks resumed, at least nominally, but as the spring of 1839 approached the southern exchanges again fell and many of the banks suspended again. On March 29 Biddle resigned the presidency of the Bank, saying that he left it strong and prosperous. The stock fell from one hundred and sixteen to one hundred and twelve, but soon recovered. The money market became stringent again, influenced by fears of the South.

In March, by speculative sales, by the diminution of stock, and by the real shortness of the crop, cotton was forced up one and one-fourth pence at Liverpool, and Biddle and Humphreys sold out their entire stock. The net profit was six hundred thousand dollars. This was regarded as a great triumph, and as a complete vindication of Biddle’s policy. In July, 1839, the Bank of the United States paid a semi-annual dividend of four per cent—its last one.

The success of the cotton speculation led to a plan for renewing it on a grander scale. On June 6, an unsigned circular was published at New York, which proposed a scheme for advancing three-fourths of the value at fourteen cents on all cotton consigned to Biddle and Humphreys. They were to “hold on until prices vigorously rally.” The agent, Mr. Wilder, declared that this had nothing to do with the United States Bank, so far as he knew. It was, however, a scheme of the Bank. The Southwestern notes were falling lower and lower, and the post notes issued in the Southwest the year before were now falling due, and were not paid. The pressure of this fell on Philadelphia, where money was up to fifteen per cent and the banks were curtailing. The news from England was also bad. Cotton was down two cents. The specie of the Bank of England was rapidly declining and money was at five per cent. The arrangements from this side in 1837 had simply consisted in renewals or extensions, and as yet few payments had been made. Stocks, etc., were sent over, but they fell upon a glutted and stringent market and the prices declined. These securities therefore did not furnish means of payment, and specie shipments were found to be necessary. The Bank of the United States had prevented any shipment of specie by offering all the bills demanded at one hundred and nine and a half, and Mr. Jandon had been obliged to adopt the most reckless means to meet these bills. In August he wrote to Biddle and Humphreys to supply him with money at any sacrifice of cotton. “Life or death to the Bank of the United States is the issue.” The Bank here urged Bevan and Humphreys to direct their agents to meet Jandon’s demands and the Bank assumed the loss. In August the Bank sent an agent to New York, to draw all the bills he could sell on Hottinguer at Paris, to draw the proceeds in specie from the New York banks, and to ship it to meet the bills, the object being to force the New York banks to suspend in order that their example might again be quoted. The Bank also sold its post notes at a discount of eighteen per cent per annum in Boston, New York, Baltimore, and smaller places, and gathered up capital to meet the emergency at Philadelphia caused by the failure of the Southern remittances. The money markets in all these cities were very stringent until October. On the ninth of that month the Bank of the United States failed on drafts from New York, and on the tenth the news was received that the drafts on Hottinguer had been protested. He had given notice that he would not pay unless he was covered, and the drafts arrived before the specie did. Jandon succeeded in getting Rothschild to take up the bills. The amount was seven million francs.

The banks south and west of New York and some of the Rhode Island banks now suspended again. Specie at Philadelphia was at one hundred and seven to one hundred and seven and one-half. United States Bank stock at seventy. On October 15, it was at eighty, and sold at New York at one-fourth premium. Scarcely any New York City notes were in circulation.

This suspension was the real catastrophe of the speculative period which preceded. A great and general liquidation now began. Perhaps as many as two hundred of these banks never resumed. The stagnation of industry lasted for three or four years. The public improvements so rashly begun were suspended or abandoned. The states were struggling with the debts contracted. Some repudiated; some suspended the payment of interest. The New England states and New York escaped all the harsher features of this depression and emerged from it first. In proportion as we go further south and west we find the distress more intense and more prolonged. The recovery was never marked by any distinct point of time, but came gradually and imperceptibly.

The credit of the Bank of the United States bore up wonderfully under the shock of its second suspension. Its friends were ready to attribute its misfortunes to conspiracies, jealousy, or any other cause but its own faults. They did not indeed know its internal history. It might have recovered if it had not been ruined from within. The cotton speculations showed a loss, in the summer of 1840, after saddling the Bank with all possible charges, of $630,000 for the speculators. The legislature of Pennsylvania ordered the banks to resume January 15, 1841. On the first of January, 1841, a statement of the assets of the Bank was made, when it appeared that they consisted of a mass of doubtful and worthless securities. The losses to date were over five millions, according to the report of the directors, but over seventeen millions, taking the stocks at their market value. The Bank resumed January 15, with the other Philadelphia banks, and the great Bank loaned the state four hundred thousand dollars, agreeing to loan as much more. In twenty days the Philadelphia banks lost eleven millions in specie, of which six millions were taken from the Bank of the United States. On February 4 the Bank failed for the third and last time. Its final failure was said to be due to stock jobbers. Suits were at once begun in such numbers that all hope of ever resuscitating it had to be abandoned. Its deposits, when it failed, were one million one hundred thousand dollars and its notes in circulation two million eight hundred thousand dollars. Twenty-seven millions out of the thirty-five of its capital were held in Europe. The stock, in March, 1841, was at seventeen. A committee of the stockholders reported in April, showing the internal history of the Bank for five years. This brought out from Mr. Biddle six letters of explanation, defense, and recrimination, which are valuable chiefly for the further insight they give into the history. As to the winding up of the Bank it is very difficult to obtain information. Private inquiries lead to the following results. Three trusts were constituted: one for the city banks to which the Bank owed five or six millions; one for the note-holders and depositors; and one for the other creditors. The city banks, the note-holders, and the depositors were ultimately paid in full. The other claims were bought up by one or two persons who took the assets. What they made of them is not matter of history.