The Half Has Never Been Told: Slavery and the Making of American Capitalism (57 page)

Even as
Jackson lit his celebratory pipe, a dramatic chain reaction had already begun to ignite. In the wake of the Bank of England’s credit-tightening, the annualized price of short-term business loans in Liverpool skyrocketed to 36 percent, making it impossible for cotton brokers to buy even as the full tide of the 1836 crop swept in. Cotton prices began a free fall that only ended in July 1837, when
a dead-cat bounce took it to 6 cents a pound. In the meantime, collapsing British merchant firms had pulled each other down as they fell. Three of the top seven Liverpool cotton traders closed their doors by the end of February. And Le Havre, France’s main cotton exchange, shut down completely.
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Into the hulls of westward-racing ships went bags of letters desperately calling in the mountains
of debt owed by American trading partners. As soon as the news reached the Mississippi’s mouth, arrays of interlinked debtors and creditors began to cascade down. One after another in the last week in March, the ten largest cotton buyers in New Orleans announced that they were insolvent. Some allegedly owed $500 for every $1 that they held in cash or collectible debts. The smaller firms were next.
On April 20, the New Orleans
Picayune
wrote that there were “no new failures to announce,” for by then “nearly all [firms] have gone.” Shockwaves fanned out across the southwestern states and the frontier and backwashed over New York, where banks shut their doors to prevent runs on their own reserves of gold and silver. By the first week of May, no one in New York could borrow, collect debts,
or carry out business at all.
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In the two most important trading centers of the United States a state prevailed that venerable former treasury secretary Albert Gallatin called “incalculable confusion.” Yet no economic actors were hit harder by what soon became known as the “Panic of 1837” than the southwestern banks. They had lent far more paper money than their own reserves of cash justified.
Their currency now traded for well under its face value. They faced massive upcoming interest payments on bonds sold on worldwide financial markets. The cotton merchants who owed southwestern banks millions in short-term commercial loans had nothing but cotton, which was selling for less than the cost of transportation. On the other hand, the slave owners who owed the banks money did have tangible
property. In one folder of the papers of the Citizens’ Bank of Louisiana, which had hurriedly disbursed some $14 million in 1835–1836, are nineteen pages of inventories of mortgaged slaves, listing more than 500 people. And that was only a fraction of those who were mortgaged to southwestern banks, which had lent at least $40 million on mortgaged slaves. At the rate of 1 slave for every $500
of outstanding debt, this meant that 80,000 or more enslaved people were put at risk of another sale by the collapse of commodity prices and the southwestern banks. Thousands more, like the 29 people (“Phillip, Toney, Caesar . . .”) whom Champ Terry of Jefferson County, Mississippi, had put up as collateral for a loan made to him by entrepreneur Nathaniel Jeffries, were privately mortgaged. Working
in the fields, sleeping at night, sitting in the quarters while they held a child, every person named on a debt document was under the auctioneer’s hammer.
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If the worst came, wrote one Mississippi enslaver to his North Carolina relative, then an enslaved woman whom they both knew—“Old Dorcas”—would be “sold to the highest bidder,” because “Duncan McBryde is in a peck of trouble.” Human flesh
had proved a liquid resource in times of trouble for many a white person like McBryde. Yet in the present crisis, the highest bid would be uselessly low. “I heard a gentleman say a few days ago,” wrote William Southgate from Alabama, “that he saw a negro fellow sell in Missi. for $60.00 in specie—which negro cost something like $2,000.” Those who tried to “dispose of some negroes to live on,” as
one bankrupt North Carolina migrant planned to do, found that “in many instances they are sold at ¼ the sum given or promised and the poor debtor left ¾ the sum to be raised from his other property if such there be.”
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BY THE SUMMER OF
1837, the sudden shift to impotence left white men all across the South anxious and angry. Men accosted each other in the streets, demanding payment for debts.
Accusers insisted that banks should open their books. Cashiers cut their own throats. Old men came out west to try to sort out the messes that their sons had made, but dropped dead of strokes when they saw how bad the messes were. When a zealous sheriff tried to press debt cases in Hinds County, Mississippi, local entrepreneurs chased him away and
let everyone know they had “laid up a bowie knife
for any man who attempts to execute the office.” Instead of liquidating debts now, wrote one member of the Natchez banking circle to another in late 1837, everyone should play for time: “The debt to the banks in this state must amount to 33 million,” but the crop of cotton now growing in Mississippi “will net probably
10 millions
of dollars.” Four crop years like the one now under way would clear
Mississippi planters of debt. This calculation convinced the Natchez man that creditors would rather take delayed payment than call on the collateral. Europe would surely soon want all the cotton Mississippi hands could make, and at a high price.
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Image 8.2. Many of the family relationships built by forced migrants to the southwest—like the ones on this list of mortgaged human “property”—would be smashed by the same mortgages and financial operations that caused those relationships to be recorded on paper in the first place. Louisiana Banking collection, Louisiana Research Collection, Tulane University.

The closing of both southwestern
and New York banks had frozen the financial sector in a kind of induced coma. The temporary shutdown also kept
southwestern banks on life support. The merchant firms of port cities such as Mobile and New Orleans, in contrast, were terminal. Most of these firms never reopened their doors. And there was another problem: when consumers and investors lack confidence that credit will be available,
they save too much, turning their fear of deepening recession into a self-fulfilling prophecy. So during a deflationary crisis, sensible macroeconomic policymakers usually prescribe “priming the pump,” in which the government’s deficit spending encourages private investment. But the federal government had already signaled that it would not take such actions. Martin Van Buren called a special “Panic
Session” of Congress in the late summer of 1837. He stood by Jackson’s Specie Circular and argued for an “Independent Treasury” that would make it impossible for a private bank to use federal deposits to create leverage. His administration did issue new federal debt, in the form of “Treasury notes,” to make up for the shortfall in federal revenue, which relied on tariff collections and land sales
and thus had declined dramatically with the collapse of trade. But the president refused to underwrite the expansion of credit for the banking system.
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Yet, “In Missi.[,] there has been no absolute loss of capital,” wrote Stephen Duncan. Enslavers still held the assets—the men, women, and children who produced the commodity around which the entire Atlantic financial economy revolved. But without
enough credit to lubricate the circuits of American trade, bales made in 1837 might well sit on the levees and docks until the wind ripped their burlap wrappers into flags. So over the next twelve months, southern entrepreneurs asked investors to sink more long-term capital into their region, and to do so on the basis of slavery-backed securities. States and territories on slavery’s frontier
issued at least $25 million in new bank debt, most of it state-backed, between 1837 and 1839. The world financial community responded. Alabama’s state bank attracted massive quantities of capital from the Rothschilds, perhaps the wealthiest family in the world, proprietors of a powerful merchant bank headquartered in London and Paris. The new issues of bank securities, in turn, allowed banks to loan
out more money to southwestern borrowers. Which they did. By 1841, the residents of Mississippi would owe twice as much money—$48 million—to the state’s banks as they had at the beginning of 1837.
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In December 1837, John Stevens traveled to New Orleans to take soundings at the disaster’s epicenter and start buying cotton bales for his employer, Prime, Ward, and King. European factories’ stockpiles
had finally shrunk. “The Planting States must in a short time recover from the shock of last year,” wrote a southern banker. Van Buren wouldn’t come to the aid of the
cotton-centered entrepreneurial economy, but other players stepped into the breach. First among them was Nicholas Biddle. After the B.U.S. charter expired in 1836, his home state rechartered it as the “Pennsylvania Bank of the United
States.” Though much reduced in power, the “B.U.S.P.” was still the largest private financial entity in the United States, and Biddle had hoarded its cash reserves through the panic.
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So now Biddle attempted the greatest creative-destructive play of all time. The B.U.S.P. issued millions of dollars in “post-notes”—promises to pay the holder of the note in a year or eighteen months for the face
value of the note plus 6 percent interest. This was a bet placed by both parties on the revival of the cotton trade. The post-notes would remonetize the cotton trade and serve as a currency to be traded for the next year and a half, by which time Biddle’s revenues from the sale of the cotton he bought would allow him to redeem the post-notes. Biddle and his intermediaries (other high-level commercial
banks, such as Brown Brothers) provided the state-chartered banks with post-notes on credit. Taking the place of the bankrupt southwestern merchants, they bought up local planters’ crops. The Commercial Bank of Natchez bought $643,000 of cotton for Liverpool on its own account, for instance, while the Planters’ Bank of Mississippi purchased 60,000 bales of cotton from local planters and shipped
the bales to Liverpool. There Biddle’s allies sat on the cotton.
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Cotton climbed from 9 cents a pound at the beginning of 1838 to almost 13 cents as enslavers across slavery’s frontier prepared to plant for 1839. And they planted a lot, because they’d soon need cash. As William Rives wrote from Clinton, Mississippi, eventually “immense sums have to be made by the Sheriffs . . . and much of it
will be made by the sale of property.” So enslavers drove their right and left hands hard in the summer of 1839. “The number of hands I have gathering cotton,” wrote A. G. Alsworth in Mississippi, “frequently average over 200 and on the 4th inst they picked as high as 214[,] two of them picked [a combined] 625.” James Haywood went into the field and, beside his slaves, “picked cotton from August
to the term, because I knew our situation and was anxious to be extricated from debt. . . . No overseer [would have] toiled as I have.”
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When all was said and done, enslavers shipped 1,650,000 bales of cotton in 1839—225,000 more than in any previous year. But once again, a rise in supply shook the commodity’s price, and it started downward. Cotton dropped from a high of 14 cents per pound in
the spring of 1839. By September it was at 10 cents. Once the scope of the vast 1839 crop emerged, the price plummeted all the way to 7 cents a pound. As it fell, it crushed Biddle’s
B.U.S.P., which had bet everything on being able to redeem post-notes by selling cotton at high prices. The end came fast. On October 9, Biddle’s last bank shut its doors. With it fell all the other institutions that
had participated in his leveraged bet.
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“Our Banks are likely to fall to pieces,” wrote Robert Carson, an Alabama enslaver, in August 1839. The Panic of 1839 was an even deeper collapse than the one two years earlier, and from this one, most southwestern banks never reopened. In Tallahassee, when the officers of the Union Bank of Florida ignored a legal judgment ordering them to pay an outstanding
bill of $197.23, the court dispatched marshals to auction off its building, the bank’s only remaining asset. As the marshals approached the front steps, followed by a crowd of onlookers ready to gloat, the door opened. Officials emerged, carrying sacks of nickels, dimes, and pennies they’d literally scraped off the bottom of the vault. It barely covered the debt. Meanwhile, the money that the
Mississippi Union Bank had received for its bonds in late 1838 washed away like a sand castle when the tide of falling cotton prices came in. One observer predicted that “Mississippi will get out of debt about the year of Christ 1897.” As it turned out, this was an overoptimistic prediction.
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