The Panic of 1819 (21 page)

A famous incident occurred at this point. General Andrew Jackson, a wealthy cotton planter from Nashville, and several other citizens of that town, sent a very vigorous memorial to the Senate denouncing the loan office bill as unconstitutional and ruinous. Senators Adam Huntsman and David Wallace denounced the memorial and successfully had it tabled by a vote of 11 to 5. However, it did have the effect of changing the cast of the bill. Instead of a loan office bill, it was converted into a bill for a Bank of the State of Tennessee. The measure was, however, in fact made more expansionist by eliminating even the pledge of future revenue and simply basing the notes on the “faith of the state.”
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The House forced a reversion to the eventual pledge of public revenue, but it also raised the maximum note issue by $1 million, although the final bill passed by only one vote. The Senate proposed striking out the maximum limit, but the House by a large majority failed to
concur. Finally, after a most vigorous controversy, the bill passed the legislature on July 27.
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Andrew Jackson had been most determined in opposing the legislation.
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In his memorial, he leveled a far-reaching attack against the bill.
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Jackson asserted that the loan office notes would not maintain equivalence with specie. All inconvertible notes depreciated down to a negligible value, and as evidence the memorial cited the old Mississippi Bubble. Jackson also cited the “judicious political economists,” who had established that “the large emissions of paper from the banks by which the country was inundated, have been the most prominent causes of those distresses of which we at present complain.” The abundant money supplied by the banks raised prices and led to extravagant expenditures. The increased paper money and higher prices depressed manufactures by artificially raising the high price of labor and making American products overpriced in foreign markets. If, Jackson and his associates concluded, “the paper issued by the banks upon a
specie
basis had been the prolific parent of so much distress, how greatly must this pressure be augmented by the emission of loan office notes.” Furthermore, these notes would not only burden tradesmen and farmers but would give a special privilege to the imprudent speculative debtor.

The remedy offered by Jackson and his associates for the depression was the same as that advanced by so many others; a return to industry and economy, an abandonment of extravagance and excessive debt. A return to industry and simplicity would restore confidence and bring back much of the hoarded specie into circulation.

The meeting which sent this memorial was organized by Jackson in Davidson County on July 15. He also organized meetings in adjacent Sumner and Wilson Counties. His friend Major William Berkeley Lewis tried to throw cold water on his moves by writing Jackson that the proposed legislation was really not much worse than private banks, and that the majority of Nashville citizens favored it. Jackson countered that the people were overwhelmingly opposed. The Jackson efforts met with bitter criticism both in the legislature, and from a grand jury of Davidson County, which accused the memorialists of attempting to thwart the will of the people.
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The final act establishing the Bank of the State of Tennessee was very similar to the loan office proposal. Nominal capital was $1 million, bank notes were to be in denominations of $1 to $100, and the notes were to be eventually redeemed by public funds. All public money was to be deposited in the bank. Loans were to be for one year, at 6 percent interest, and personal loans to be limited to $500. The bank could not call in more than 10 percent of a loan when due, except after sixty days’ notice. Personal loans would be renewable every three months. Notes were authorized up to $1 million. A stay provision held up executions for two years unless the creditor accepted the bank’s notes.

The new bank was never popular in Tennessee. The proponents were disgruntled because they felt the 6 percent interest charge to be too high. On the other hand, the notes immediately depreciated to a great extent. The Nashville Bank and the old private Bank of Tennessee refused to accept the notes of the new state bank. Furthermore, they did their best to thwart inflation of the currency by calling their loans and contracting their note issue.
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In June, 1821, the bank received a severe blow when the Supreme Court of Tennessee declared the stay provision unconstitutional. The handwriting for the bank was on the wall.

Both gubernatorial candidates in the 1821 elections staunchly favored rapid return to a specie basis. One of the candidates was
Colonel Edward Ward of Nashville, a conservative planter and the leading cosigner of the Jackson memorial. He issued a circular to the people during his campaign denouncing the emission of paper by the new bank. Ward admitted that a large supply of paper might help the debtor, but only through injuring the creditor. Furthermore, the depreciation of currency had brought evil results to the whole country. The remedy, then, was for each individual to practice thorough economy, and for a prompt return to specie payments.

His successful opponent, Major-General William Carroll, a Nashville merchant, had practically the same views. He also advocated a prompt return to specie payment. As a matter of fact, his basic view, even though he himself was a director of the Farmers’ and Merchants’ Bank of Nashville, went beyond Ward’s in opposing all banks. He also attributed the crisis to the previously undue increase in the volume of bank notes.
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In his Inaugural Message, Carroll denounced the evil consequences which had resulted from the state bank:

When floodgates are thrown open . . . there is no safe criterion to regulate . . . emission. The moment you issue more than is necessary, it depreciates . . . [particularly] . . . beyond our own neighborhood. . . . Every specie dollar that can be obtained from the vaults of the banks is . . . hoarded.

He called for gradual resumption of specie payments to restore confidence; prompt resumption, he concluded, would put undue pressure on debtors.
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Carroll acknowledged that distress existed, but declared the only remedy to be industry and economy; these remedies had to be put into effect by the individual. By 1822, Carroll declared that the pecuniary embarrassments had “greatly diminished” due to the industry of the citizens.
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The Bank was not ended quickly, however, as Grundy managed to battle the Administration for many years. A bill was passed in 1821 providing for resumption by all the banks by 1824, but the Grundy forces managed to postpone the full resumption of specie payments in Tennessee until July, 1826.
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It ceased to be an important factor, even though its formal existence was extended to 1831, when it ended with a shortage of funds of $100 thousand.

The state of Kentucky had a checkered banking history before the crisis of 1819. Since 1806, the dominant bank in the state had been the Bank of Kentucky, with $1 million capital stock. This bank was half owned by the state, and half the directors were government-appointed; consequently, its operations were intimately associated with the government. During the postwar boom, the legislature chartered, in one session of 1817–18, no less than forty-six new banks with a total capitalization of $10 million. This contrasted to the total of two banks previously in existence in the state. The legislature made the entire banking structure very weak by authorizing redeemability of their notes in the notes of the Bank of Kentucky, as well as in specie.
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The new banks expanded their credit and note issue greatly during the summer of 1818, and large speculative loans were lavishly granted. The crisis of 1819 hit Kentucky severely, and monetary difficulties figured prominently in the debacle. During 1819 and 1820, all of the new banks failed; they were not able to redeem in Bank of Kentucky notes or in specie. Still more significant was the suspension of specie payments by the Bank of Kentucky itself in November, 1818. The Bank of Kentucky had expanded its issue during the boom, too, and much of the pressure for redemption came from balances which had accumulated against it in favor of the Bank of the United States, some of them receipts of the government land office.
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Representatives of the leading banks of Kentucky met at Frankfort on May 17, 1819, and pledged to cooperate among themselves to increase the circulating medium, without suspending specie payments. Suspensions, however, continued apace.
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In this troubled monetary situation, a group of citizens of Franklin County, containing the city of Frankfort, met on June 4, to take into consideration the present state of the country and devise means to avert impending distress.
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They drew up a set of resolutions which became famous throughout the country, drawing comment from the presses of Washington, Philadelphia, and New York. This was probably due to the eminence of the sponsors, unusual for county meetings of this type. Chairman of the meeting was Jacob Creath, an outstanding minister and orator, and also present were such leading political figures as George Adams, George M. Bibb, John Pope, and Martin D. Hardin.
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It is interesting that even the bitter eastern opponents of the resolutions admitted the unquestioned respectability of the participants. The Frankfort Resolutions began by pointing to the economic distress, the “scarcity of money,” the pressure of debtors, the “smaller employment,” lack of confidence, and disruption of trade. The resolutions first charged the banks with largely causing the distress by expanding loans and note issues, thereby encouraging speculation and extravagant spending, and leaving themselves vulnerable to runs for specie. After this analysis, the resolutions called upon the banks to do their proper share to remedy the depressed conditions. What should the banks do to fulfill the responsibility? They should “suspend specie payments and make moderate paper issue.” Furthermore, the legislature should meet in special session and take steps quickly to permit the banks to continue in operations while suspending specie payments. This was a curious charge indeed upon the banks. It was not without justice that the New York
American
charged that from the proposals one would think the meeting was a convention of bank directors.
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The resolutions did suggest, however, a maximum legal regulation on the amount of bank paper that could be issued during the suspension, violation of which would forfeit a bank’s charter.

The Frankfort Resolutions created a great stir, notably in Kentucky but throughout the country as well. In Kentucky, countywide meetings of citizens immediately mushroomed, some supporting, some opposing the Frankfort proposals. In nearby Bourbon County, a citizens’ meeting passed nearly unanimously similar resolutions calling for a special session to permit suspension of specie payments, and liberal note issue by the banks. Adjacent Shelby and Scott Counties also endorsed the proposals.
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Nearby Harrison County issued a similar resolution, but along slightly more conservative lines. It called for the banks to make new issues of paper, postpone their demands on debtors, and for the government to permit suspensions of specie payments. It refused, however, to endorse the demands for a special session.

The Frankfort Resolutions provoked vigorous reactions by conservative papers in the East, especially in New York City. William Coleman, editor of the New York
Evening Post
and the former “Field Marshal of Federalism,” issued an editorial denouncing the proposals.
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After proudly proclaiming that in New York City there would be no suspension of specie payments, the
Post
declared that
any new monetary issue would simply depreciate proportionately. “The attempt to raise prices by increasing the circulating medium is only to make the same quantity of produce pass for a greater nominal amount in paper.” The best course for the banks would be to stop and issue no more irredeemable paper, and to redeem the notes which they had already issued. To refuse to redeem notes and to continue issuing more, declared Coleman, “under the pretext of keeping up the value of property,” would be just as wise as it would be for farmers to establish a bank in every field of corn to keep up the price of grain by issuing notes to facilitate purchase. Other papers attacking the Frankfort Resolutions were the New York
American
, New York
Daily Advertiser
, and the
National Intelligencer
. The
American
and the
lntelligencer
conceded that the participants at the Frankfort meeting were highly respectable citizens.
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Although the Frankfort Resolutions were denounced in the eastern press, the controversy over the resolutions must not be conceived as an East-West conflict. The debate within Kentucky was spirited and determined, and the opposition was centered in the same geographical area as the proponents. Thus, the resolutions were attacked by two leading Kentucky newspapers—the Frankfort
Kentucky Argus
and the Lexington
Kentucky Herald
—which denounced the proposals as “shielding the extravagant debtor from his honest creditor,” and as trying to “interfere in individual transactions, and thereby . . . to destroy confidence.”
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The
Argus
maintained that most Kentuckians opposed the resolutions.
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“Franklin” conceded a shortage of specie in the West, but stated the reason to be lack of confidence in the banks. “This want of confidence induces every man . . . who gets possession of a
fund of dollars
, to lay it by.” The proper remedy commended to his fellow citizens of Louisville was a law exacting penalties on banks for so
much as whispering the idea of suspending specie payments. This would restore confidence in the banks and their “specie will be abundant.”
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A citizens’ meeting in Jefferson County, containing Louisville, passed by a large majority a resolution that the banks ought to continue redeeming their notes in specie and opposing a special session. On the other hand, a citizens’ meeting in rural Bullitt County, adjacent to Jefferson, advocated suspension of specie payments, especially for the Bank of Kentucky.