The Half Has Never Been Told: Slavery and the Making of American Capitalism (56 page)

Southern congressmen reacted with fury, insisting that the petitions could
not be read into the public record. But that reaction itself helped the petitions gain a stubborn and canny legislative champion. John Quincy Adams, former president, was now the representative from his home district in Massachusetts, and he saw a chance to get revenge for critiques he’d suffered at the hands of southerners during his presidency. Adams argued that the right of citizens to petition
their legislature went back to England’s Magna Carta, and that the petitions should be read into the congressional record. Southerners, with many northern representatives concurring, responded by passing a “gag rule” that automatically tabled any petition referring to slavery. Yet Adams had a bag of parliamentary tricks that allowed him to keep forcing the petition issue into discussion in the
House. And the petitions kept coming. By 1836, many echoed a claim that Benjamin Lundy was making in print: that “the slave holders of this country, (with land speculators and slave traders),” instigated the Texas Revolution “to open a vast and profitable SLAVE-MARKET therein, and ultimately to annex it to the United States.”
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Adams told his constituents that whether they cared about slavery
or not, the weight of this massive new slave territory would render New England forever politically irrelevant. And the southern congressmen were making it easy for him to claim that the slaveholders, with their zeal for hushing criticism of slavery, were sacrificing the basic political rights of other white Americans by stifling their rights of petition and free speech. The uproar over the petitions
convinced Andrew Jackson to back away from immediate annexation. Still, by March 1837, the fear that Britain might make Texas its client state had enabled the president to manipulate Congress into recognizing the new republic as an independent country, separate from Mexico. So as Jackson sipped Madeira, almost eight years after his first raucous evening at the White House, he confidently expected
that Texas would soon become one (or several) states.
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Perhaps the outgoing president was less sanguine about other recent developments. He was certainly eager to deny complicity in the flood of credit
sloshing through the nation’s economy. But one of the main reasons why the supply of money in circulation rose by 50 percent between 1834 and 1836 was that he had freed the banks from scrutiny
by his veto of the Monster Bank. Now, wrote Burrell Fox from a new Mississippi town, “Everything is at its high water, there was five droves of negroes [sold] this fall . . . fellows at $1200 to $1400 and up . . . times appear to be brisk for everything that can come to market, even apples is selling at Vicksburg for $5 a barrel.” A North Carolina migrant reported that his relatives along the Tombigbee
in northeastern Mississippi were “all deranged on the subject of real estate.” Even in the dormitories of the University of Alabama, reported a student, there was “more talk of speculation . . . than anything else. Every[body] is awake to the land speculation, money is plenty.”
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Of course, if everyone was “awake,” it was hard to see how one could continue to buy low and sell high. By 1836, the
Alabama and Mississippi relatives of Pendleton County, South Carolina, enslaver Thomas Harrison had been pressing him to move his investments west for years. “Pendleton is a very happy and pleasant country,” they wrote, but for all of its “pleasures and comforts,” it was just the place to miss the chance: “Surely it must be very unprofitable to have money vested in land and negroes there.” Hurry
out, they told him, before the “speculators and capitalists” buy all the good cotton land. But Harrison feared that credit on slavery’s frontier was now coming too easy, that “the immense floods of paper money with which the country is inundated if not checked will give a fictitious value to property beyond anything ever known.” In fact, he noted, irrational increases in asset prices were already
evident. He sent a group of his enslaved people out to Alabama so that a son located there could sell them off at the current high prices. On the way back from a visit, Thomas Harrison traveled through Kentucky, where people there assured him that the price of their land would “never fall again.” Harrison wrote, “But this I do not believe. That the whole real property of a state so long settled
should increase permanently in value 500 per cent in five years is impossible.” Like a North Carolinian who warned his migrating son not to let “the wild extravagant speculating notions of these Southern people lead you astray,” for “a reaction must take place,” Harrison feared a calamity would soon “involve thousands in ruin.”
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The term “bubble” gets used to describe a situation in which an
important asset has become wildly overvalued compared to realistic predictions of future returns. From 1800 onward, the price of slaves—the most important asset in the southern economy—had always tracked that of cotton, or, more specifically, the rate of individual productivity times the price of a pound
of cotton. In 1834, however, slave prices detached themselves from that of cotton and soared
upward on a new trajectory (see
Figure 6.2
). By the time Louisiana’s Jacob Bieller bought dozens of slaves on credit from Isaac Franklin and Rice Ballard in 1836, for instance, he paid over $1,500 each for the young men, more than twice the 1830 price, even though cotton prices had declined from a late-1834 peak to 1830 levels.
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For decades before the financial crisis of 2008, most economists
dogmatically insisted that the behavior of the market and its actors was inevitably rational. Yet a few brave souls insisted that the history of bubbles, booms, and crashes showed a clear historical record of mass irrational economic behavior. Throughout history, in fact, when three conditions occur at the same time, an asset bubble—irrationally high prices for some category of asset—usually emerges.
Thomas Harrison was observing all three. The first such condition is the elimination of market regulation. By 1836, Jackson’s administration had destroyed the B.U.S., and replaced it with nothing. Nor did states try to control how much money banks printed and lent. Meanwhile, the national Whig Party, once the champion of the B.U.S., now tried to eliminate regulation altogether by passing the
Deposit Act of 1836. This act shifted public land revenues from western banks to eastern ones, allowing the latter to increase their lending. The Whigs also doubled the number of pet banks.
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Lending by US banks had also increased dramatically since 1833 because of the second cause of bubbles: financial innovations that make it easier to expand the leverage of borrowers. C.A.P.L.-style bonds
provided distant investors with opportunity to purchase shares in the income flows of thousands of slaves—to speculate, in effect, on future revenues generated by cotton and slaves. These securities drew cash into the southwestern region, inflating the value of all kinds of assets, especially enslaved “hands.”

But one more factor makes a bubble run wild, and that is the euphoric belief that the
rules of economics have changed, that somehow “this time is different” and asset prices will not return to their mean. “We can see nothing in the prospects of the Country to make it likely that [positive forecasts] will be disappointed,” wrote merchants Byrne Hammond and Company in March 1836. “The whole Southern and Western country is in a most prosperous state and its products annually extending
in a most extraordinary manner.” Southwestern entrepreneurs, particularly prone to aggressive, risk-taking behavior, suffered an especially bad case of the strain of this-time-is-different thinking called “disaster myopia,” meaning that they underestimated both the likelihood and the probable magnitude of financial corrections. Thus, a white migrant who wrote that the 1836 price of “fifteen hundred
dollars
[for] ordinary field hands” was “extravagant” assumed in the next breath that prices would rise further, and he hoped to take advantage: “Cuff, for instance, would command sixteen hundred.” Although “negroes are all out of character high,” wrote Henry Draft in 1835, “I see no prospect of their falling. . . . I fully believe negroes will be higher.” He believed it, for he needed to believe
it. “I don’t want them to fall at present, for I have Ten on hand,” whom he hoped to resell for a profit.
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“Everybody is in debt neck over ears,” wrote one young Alabama planter to his Connecticut father. The house of cards built by what Thomas Harrison called “the wild speculating notions of these Southern people” could collapse, and then “those who are making large contracts with all their
show of wealth must come down.” Yet in late summer 1836, the editor of the commerce-dedicated newspaper
New Orleans Price-Current
told his readers not to worry. True, there was a lot of debt hanging over Louisiana entrepreneurs and their banks: bank loans, dry goods “sold on credit to the upper country more than usual,” major infrastructure projects in and around New Orleans (gas-lighting networks,
railroads, levees, canals, steam-powered cotton presses), and “lands entered in the upper country and negroes purchased, to be paid out of the ensuing crop” of cotton, “for which the money has already been drawn from New Orleans.” That all added up to $23 million, leveraged on the steelyard beam against the anticipated revenue to be generated from what hands were at that very moment picking
in the fields. For “all of this deficit,” insisted the
Price-Current
, “will soon be covered by the receipt of Cotton, Sugar, and the various products of the Western States, which we may assume with great safety will amount to at least sixty millions of dollars.” Thus, even though a slave trader wrote from Alabama in December that “business seems dull,” he added that “traders are not discouraged.”
Cotton was at 16 cents a pound, but “it will bear 25 cents before the crop is in.”
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There was much more cotton in 1836 than there had been in 1828. Over eight years of seedtime, the US government, the states, banks, private citizens, and foreign entities had collectively invested about $400 million, or one-third of the value of all US economic activity in 1830, into expanding production on slavery’s
frontier. This includes the price of 250,000 slaves moved, 48 million new acres of public land sold, the costs of Indian removals and wars, and the massive expansion of the southwestern financial infrastructure. The number of hands on cotton plantations expanded dramatically, and the need to repay loans only accelerated the whipping-machine, collectively forcing the total picking that hands
could accomplish just a little higher each day. In 1830, the United States made 732,000 bales. As the harvest kicked
into high gear in the fall of 1836, men who made a living by gambling on cotton were predicting a deluge of 1.5 million bales, each one a 400-pound snowy semi-cube wrapped in canvas. This was 600 million pounds of clean cotton—or, expressed in a different way, more than six million
person-days of picking under the hot sun.
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European and North American economies had been expanding and people were buying more, but consumers’ demand for cotton goods simply could not keep up with this vast an increase in supply. In late summer 1834, the price of cotton at New Orleans was 18 cents per pound. After that, it began to decline, reaching 12 cents in early 1836. Unease with the slow
downward trend in prices was beginning to shape decisions at the commanding heights of the transatlantic economy. By late 1836, Baring Brothers, the most influential commercial bank in the world, had been quietly restricting new investments for almost twelve months. And as that year’s bumper crop began to reach market, one speculator privately ruminated: “Will prices in Liverpool continue to hold
their own? We think not.”
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The White House was also quietly alarmed, in its case by the dramatic expansion of speculation in public lands. Purchases had reached the figure of $5 million a month in the summer of 1836. In response, Jackson issued the “Specie Circular” in July, declaring that from August onward, only gold and silver would be accepted as payment for most government-owned lands.
Jackson’s advisers didn’t want him to issue the Specie Circular. It was based on his old-fashioned misunderstanding of the nature of money and credit in a modernizing economy, and it clogged the economy’s circulatory system. Heavy gold and silver had to be moved from the East Coast to Indiana and Mississippi and then back again. Land sales plummeted. Banks began to charge a premium for gold and silver,
making everything else more expensive.

Still, by winter the flow of money, credit, and goods through the channels of the American economy had begun to adjust to Jackson’s friction-creating policy. All other commodities—cotton, consumer goods, and slaves—continued to move on a paper money basis, helped by commercial banks like Brown Brothers of New York, which kept credit flowing to merchants
and importers. And that was important, because the entire Atlantic economy now depended on the ability of the planters to cycle cotton revenues back through the system. Yet British textile mills already held high stocks of raw cotton, and layoffs at factories were increasing. Soon consumers would choose to wear their old clothes into rags rather than replace them. Demand for raw cotton was about to
crater. The Bank of England, the source of credit for
British cotton-buying firms in Liverpool, began to get nervous. In late 1836, it began denying credit to those firms.
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It took a while for news of this decision to percolate back across the Atlantic. In February, as Martin Van Buren’s inauguration approached, a few insiders were quietly coming to realize that this time was not, after all,
different—unless by “different” one meant especially disastrous. “Against the judgment of others in whom I usually confide, I do not anticipate that the present prices of cotton will be fully maintained,” a Washington correspondent warned John Stevens, a principal at the New York firm Prime, Ward, and King, which held millions in slave-backed securities issued by southwestern states.
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