Crisis of 1825

fall of 1822 there was a reaction, woollen and cotton goods falling" 50 per cent, in a few weeks in December. In 1823 the circulation of the United States Bank was very low—$4,081,842, but there was a great creation of banks, and insurance and other companies at New York. Later in the year the United States Bank received the notes of all its branches, and began to expand. CRISIS OF 1825. In 1824 all the banks expanded. Pennsylvania rechartered, the banks of 1814, A new tariff was obtained raising duties to 35 per cent., and a grand era of prosperity was expected. In the spring of 1825 fifty-two charters were petitioned for in New York for banks and insurance companies. When charters could not be obtained of New York, they were obtained in New Jersey, and the banks were established on the west bank ? of the Hudson. In Kentucky there was anarchy. Alabama and Tennessee notes were at a discount.

Indiana, Illinois, and Missouri were still suffering from the " relief" system (stay laws against the collection of debts, etc.). The New York and HISTORY OF AMERICAN CURRENCY. 85 Boston city banks were fighting the country issues, which, being current and depreciated, drove out the better notes of the city banks. The Bank of the United States increased its issues over 3,000,000. In the meantime business was reviving in England, manufactures especially being very prosperous, and creating a great demand for raw materials.* Heavy orders for cotton ran its price up here to 27 cents. Corn was pulled up to plant cotton, and an active speculation in it began. The excess of exports over imports of specie in 1825 were $2,646,290. The excess of exports over imports of merchandise were $549,023. In July the fall in prices in England brought a fall here. Fifty failures took place in New York before December. Banks failed in large numbers. The United States Bank was in trouble. The government wanted to pay off seven millions through the bank, but delayed this operation at the request of the latter, giving occasion to one of Jackson's subsequent charges against it. When it was done the bank * See Chapter II. p. 302.

86 HISTORY OF AMERICAN CURRENCY. became debtor to the State banks and could not redeem its notes, explaining that bills drawn to pay English troops in Canada and for the formation of a bank in New Orleans had shortened specie supplies. It will be observed that the outflow of specie must always take place in that form which at the moment gives greatest profit, though, the cause is always the same, and the usage is to explain the cause by the form of the export. The causes mentioned could have had no effect whatever unless there had been overissues. In 1826 there was dulness and reaction throughout the year. The cotton crop was poor. There were applications for charters for 123 banks and insurance companies in New York, which were refused. In April, 1826, ten or twelve failed and a run followed ; but the banks held out. In this year the importations of merchandise exceeded the exportations by $5,202,722 ; the importations of specie exceeded the exportations by $2,176,433. The method of importation was to buy bills, get long credit for duties, and send the cargos, as soon as received, to auction. The aucHISTORY OF AMERICAN CURRENCY. %7 tioncer's notes were discounted, new bills bought, and the transaction repeated as long as rising prices and easy credit made it possible.

The crisis of 1825 was by no means so great in this country as in England. The country was not yet recovered from the convulsion of 1819. The Western States especially had, as yet, not escaped from the effects of that crisis. The speculation here was led off by the excitement in England, especially in cotton. The joint-stockcompany mania seems also to have broken out here by contagion or sympathy. The banks, instead of applying any check to the unhealthy movement, or using any conservative measures, joined freely in the excitement. The crisis was not a bank crisis. Suspensions were not in fashion, and the few banks which did suspend failed. The prudent refusal of the New York legislature to grant the charters asked for during the last two years was amply justified. In 1827 money was plentiful. In 1828 it was plentiful until May, when there was great scarcity, renewed in September. In May, 1828, the highest protective tariff before 1864 was 88 HISTORY OF AMERICAN CURRENCY.

passed. The percentage of duties on total imports in 1830 was 30.93, and on dutiable, 47.46. In 1829 money was scarce until July, when it became plentiful. President Jackson opened the attack on the United States Bank in his first message in December of that year. In 1830 money was plentiful. An English writer of the period speaks of specie as flowing to America from all parts of the world, and Niles' Register quotes a contemporary as complaining of the over-abundance of silver, and wishing some gulf might open to swallow it. The Bank of the United States increased its loans. During 1831 it continued this movement, increasing its loans from forty to sixty millions, as President Jackson charged, in order to manufacture popularity. In October, 1831, the money-market became stringent. In 1832 the United States Bank still further extended its discounts to seventy millions. INVESTMENTS OF FOREIGN CAPITAL.

About the year 1830 American securities began to attract English investments. Some stock HISTORY OF AMERICAN CURRENCY. gg of the United States Bank had been held by foreigners from still earlier date, but large transfers of it occurred late in the twenties. State and canal stocks were also sold abroad in 1828-1832. The opportunities for remunerative investment of capital in this country waited only for improved transportation to present themselves. Canals were the first movement in this direction, and steamboats the next; but, in the decade from 1830 to 1840, railroads being introduced, the industrial development of the country went on with gigantic strides. At the same time the old restrictive system was partially broken down, first by the freeing of some raw materials in England under Mr. Huskisson's administration, then by the modification of the Navigation Acts, extorted from England by Prussia in T825, by which the trade with the British West Indies was opened—an advantage which did not accrue to the United States, on account of diplomatic mistakes (this country claiming as a right what was offered as a privilege) until 1830, and thirdly by our lame compromise tariff.

The interesting period whose history we have 9o HISTORY OF AMERICAN CURRENCY. next to pursue, cannot be understood if observed from a narrow standpoint, and interpreted by subordinate incidents. The introduction of the new means of intercourse produced a development of industry so great as to amount to a revolution, so sudden as to create a convulsion. It required for its guidance, above all, financial skill ; for it caused a strain upon the existing capital of society beyond what it was able to bear. This led to the usual resort to credit, and to credit in its most explosive forms, bank discounts and paper currency. The downfall at the end of the, decade was the result of too headlong a career of prosperity, or of the intoxication which comes to men when they find themselves in control of undreamed-of powers of production. The two greatest commercial nations, England and the United States, were naturally the first to avail themselves of the new inventions, and they felt the crisis the most severely. They were tied together by the capital loaned by the elder to the younger nation. Some asserted at the time that specie currency would hold the two toHISTORY OF AMERICAN CURRENCY. 91 gether, and render every circumstance of the one important to the other; others affirmed the same of paper currency. Neither party was on the right track. Evidently the bond which bound them was the credit extended to America by England, and the crisis in either country cannot be understood without reference to the events and movements in the other.