Recap: “Bad Bicentennial,” w/ Providence College Prof. Sharon Ann Murphy

Half history colloquium, half crash course in 19th-century public finance, Providence College Professor of History Sharon Ann Murphy’s October 18 talk at the Kinder Institute, “Reflections on the Panic of 1819,” began with a lesson on how not to borrow and how not to lend. After the War of 1812, she noted in opening, the U.S. went almost straight into a period of financial boom, thanks in large part to the 1815 eruption of Mount Tambora, which wreaked havoc on agricultural output in Europe. The result was a shortage of cotton, grain, and tobacco there, the effects of which cascaded throughout the American economy: a spike in cotton prices, which led to a spike in public land sales in the South and West, which led to a corresponding spike both in land and slave prices.

The financial bubbles that formed as a result of land speculation must be understood, Prof. Murphy continued, within the context of the commercial banking structures of the early United States. With the First Bank of the United States’ charter having expired in 1811, the banking landscape was dominated by private, state-chartered institutions which, short on specie, issued loans in the form of banknotes (a practice that the Second U.S. Bank likewise adopted when it was re-chartered in 1817…more on that in a moment). The issues with these banknotes were twofold, Prof. Murphy explained, and both led to near immediate devaluation. One, the notes were easy to counterfeit, which predictably inspired a lack of confidence. Two, they faced a problem of transportation. Notes originating in Massachusetts, for example, were brought by the stagecoach-load to the Western Territories but were only redeemable in Massachusetts. This led to them circulating at a deep discount with merchants and to coastal banks issuing far more notes than they could back in specie, due to the expectation that a number wouldn’t be redeemed, simply out of the nuisance of doing so.

When the Second Bank of the United States (2BUS) entered the fray, this geographic inexpediency was eased to a degree, given that 2BUS-issued banknotes could be redeemed at one of 18 BUS branches that were scattered across the U.S. In spite of the contentious state-federal relations that ensued—state-chartered banks started taxing BUS branches to make up for lost revenue (until McCulloch v. Maryland deemed this unconstitutional)—the public and private accumulation of debt was sustainable so long as the economy remained strong. Which, of course, it quickly failed to. As Prof. Murphy outlined, a number of trans-Atlantic factors conspired to precipitate the 1819 Panic: revolutions in Latin America decreased specie supply, competition from India and Egypt in the cotton market was on the rise, and European agriculture was on the mend. Things reached a head when, domestically, $2 million in Louisiana Bonds came due in specie—specie that the central 2BUS branch in Philadelphia didn’t have and that its overextended satellite branches couldn’t recoup from their overextended borrowers when loans were called back in. Land values plummeted with foreclosures and crop values followed, sparking a contractionary spiral that led to bank runs, to bank failures, and ultimately to the new republic’s first great depression.

Turning toward her current research into the on-the-ground reach and ripples of the Panic, Prof. Murphy took the audience to Russellville, KY, where, in October 1817, with markets on the doorstep of collapse, speculators Armistead Morehead and Robert Latham found themselves $16,000 in the hole to the Bank of Kentucky, which, understandably nervous, had demanded that Morehead and Latham mortgage slaves, land, and properties to back up the loans they’d received. When credit dried up in Kentucky, they crossed the border to Clarksville, TN, where local merchant Samuel Vance endorsed their $4,500 bill of exchange only after Morehead and Latham agreed to mortgage the same 19 slaves that, unbeknownst to Vance, they had already mortgaged to the Bank of Kentucky. Little time passed before Morehead and Latham were entirely underwater, which led to a protracted legal battle between Vance, who had already sold one of the mortgaged slaves, and Bank of Kentucky, which, seeing Vance’s designs, quickly seized 11 more. Vance argued that the Bank could re-possess and sell any number of assets—acreage, houses, Morehead and Latham’s distillery—whereas he had only one option. The courts, however, ruled in favor of the Bank which, undeterred by anything resembling a moral qualm, proceeded to sell off the remaining seven slaves at the highest price possible. As Prof. Murphy argued in drawing her talk to a close, this arrangement, a common one in the post-Panic years, adds stark new depth to our understanding of the instability of the lives of enslaved persons. Not only, as Prof. Lawrence Goldman showed in a Fall 2018 lecture at the Kinder Institute, were they subject to the arbitrary whims of their enslavers. In the narrative of “accelerated instability” that Prof. Murphy ended with, enslaved persons were also being reduced to the status of abstract financial assets whose fates were now decided by wholly disinterested third parties.