The Bank Crash of 1839

148 HISTORY OF AMERICAN CURRENCY. Bank of England declined until October. In that month the Bank had ^2,525,000 in bullion; notes, ^17,612,000; and deposits, ^6,734,000. In May the rate was 5 per cent. ; June 20, 5-J-; August 1, 6 ; September, 6J. In the autumn the Bank of Belgium failed, and there was a run on the banks at Paris. * The Bank of England borrowed ^2,500,000 of the Bank of France through Barings. After October gold began to flow into England, and the pressure subsided. These incidents again reacted on this country. The suspension had not been followed by any great reduction of paper here, but had rather enabled the banks to go on without reducing; only at New York, where they were most exposed to the action of an adverse exchange, and where the legislature had taken prompt measures of compulsion, was there a thorough reduction. THE BANK CRASH OF 1839. The Bank of the United States during the year 1838 became involved in cotton specula* Macleod.

HISTORY OF AMERICAN CURRENCY, tions, assuming the troubles to be over, and buying for a rise. On the revival of business in England in that year cotton did rise, and in May, 1839, it was at 16 cents, but from that time it declined again. It was not above 12 cents in 1840 (September), not above 11 cents in 1841 (February), not above 9 cents in 1842 (March), and not above 8 cents in 1843 (October). It did not reach 12 cents again until February, 1847. To the bank this course of the market was ruinous. It made the utmost exertions to sustain itself by the sale of bonds in Europe, and by issuing post notes which were sold in New York and Boston at 18 to 24 per cent, discount. Several banks failed in different parts of the Union, and the struggle to sustain specie payments became very severe. Throughout the Western States, especially in Michigan and Illinois, the failures were numerous. The banks of Mississippi, which, as above stated, had become extensive dealers in cotton, of which they were carrying large quantities, were nearly all ruined, and their notes, and those of the various jointstock companies which had issued notes, were at from 150 HISTORY OF AMERICAN CURRENCY.

25 to 60 per cent, discount. The State of Michigan was engaged in building railroads, and was involved in debt. The roads were sold to incorporated companies at a loss of almost their entire cost. Alabama had created a debt of fifteen millions to found a banking system. This was nearly all lost. In 1838 Mississippi borrowed seven millions in bonds to found banks. This debt was repudiated. It afterwards came out that the Bank of the United States was carrying on operations at this time for which no condemnation could be too severe. As the New York banks were staggering under the effort to avoid new suspension, which the United States Bank eagerly desired, it took the step of selling exchange in New York, and using the notes and checks obtained in order to make a run on the New York banks for specie, which it shipped to meet the exchange when it fell due. This almost incredible action is stated and described in detail by Mr. Cowpetthwaite, formerly assistant cashier of the bank, in a report of a committee of stockholders in 1841, which is quoted at length by Benton, HISTORY OF AMERICAN CURRENCY.

" Thirty Years' View," II, 370. It, however, met a fit reward. The United States Bank was deeply in debt to Europe, and relied on the success of its manoeuvre to meet the bills, but it drew so rapidly and recklessly that it could not send notice of the drafts, and on the 16th of September, 1839, one of its drafts was refused at Paris. It then tried to effect loans in Holland, and, failing, it applied to the Bank of England, where the rate was now 6 per cent. This Bank was itself in as severe straits as at any time in its history, but it loaned a small sum. Macleod quotes the New York Evening Post on the operations of the bank at home, showing that it owed from ten to twenty millions in New York and $800,000 in Boston. It appears that the prestige of the bank was not broken until this time, and that the question between it and its opponents was held open. On the 10th of October, 1839, it closed its doors and was followed by nearly all the banks in the South and West.

The New England and New York banks held out bravely, but, taking the country over, this was the real collapse of the banking system which HISTORY OF AMERICAN CURRENCY. had been growing-up. 343 out of 850 banks closed entirely, and 62 partially. Of the government deposits some two millions were lost. The second suspension lasted in Pennsylvania until June 15, 18 ]i, being limited by statute. As soon as the Bank of the United States opened a run upon it began, and it closed finally on February 4, 184 T. This led to a third suspension, and specie payments were not definitely resumed until March 18, 1842. The London Bankers' Circular * said that four million pounds sterling of the stock of the United States Bank was held by Englishmen, ^20,000 by the people of Guernsey. Its capital was a total loss, and the seven millions United States stock subscribed into the capital of the bank by the government is mentioned by the Secretary of the Treasury (Finance Report, 1872, p. 18) among the items of the debt for which no cash ever came into the Treasury, i.e., it was created for this purpose.

The speculation in Western lands and city lots burst in 1837, but the banks escaped by * Quoted \>j Benton.

HISTORY OF AMERICAN CURRENCY. 153 ouspensiori. As will be seen by the table given above,* the currency was not greatly reduced in 1837 and 1838, and, as will be seen by the diagram opposite p. 227, prices of staple articles were arrested in their fall in 1838. The blow fell upon speculative investments, articles of luxury, and imported articles, the prices of which always feel paper inflation most. Nor was the fall of prices from 1839 to 1843 due to any forced contraction of the currency. The more correct explanation of the phenomena is that the destruction of the banking system brought with it a collapse of the industry of the country. The revulsion was so complete that it could not be arrested until industry came almost to a standstill and took a fresh start. 1841 was considered comparatively a year of prosperity, but on January 1, 1844, tne banks held forty-six millions in specie against forty-four millions of circulation,!

and money was easy at 3J and 4 per cent. The year 1843 was one of the gloomiest in our industrial history. The grand promise of ten years * Page 107. f Hunt's Magazine, July, 1844. The returns were probably incomplete. 7* IT A HISTORY OF AMERICAN CURRENCY. before was now entirely obscured. Mortgaged property was passing into the possession of mortgagees. Factories were idle. Trade was dull, investments slow. All the natural advantages of the country were present unimpaired, but the haste to realize them had brought ruin which time only could repair. The year 1843 was one in which the ideal of some economists was realized. We exported forty millions more merchandise than we imported, and we imported twenty millions more specie than we exported, but the significance of these facts was simply this : we were paving up for the grand times of the years before, It was like the spendthrift living low to recover his position, and we were doing it by producing mainly tor export, at prices low enough to suit the creditors. The patient being in this low state the doctors gave him another dose of protective tariff, and, as he got better, they have published the case in their almanacs ever since.