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i03 
 
 The Panic 
 
 
 and 1857 
 
 AN ADDRESS 
 
 HON. JOHN E3 RUSSELL 
 
 DELIVERED HEFORE 
 
 THE NEW ENGLAND FREE TRADE LEAGUE 
 MAY 21, 1896 
 

 p 
 
 THE PANICS OF 1837 AND 18^7. 
 
 The Panic of 1837. 
 
 In looking up the panic of 1837, in speeches, Congressional re- 
 ports, biographies, and newspapers, I do not find any assertion near 
 the time attributing the financial distress to the tariff until the de- 
 bate in the Senate in 1842, when Mr. Calhoun, arguing against the 
 increase of duties in the act of that year, declared that the panic of 
 '37 was caused by the surplus poured into the treasury by the tariff 
 of 1833. Both Mr. Calhoun and Colonel Albert Clarke of the Home 
 Market Club attribute the trouble to the tariff. The man of that 
 period said it was too high, and the man of our time says it was not 
 high enough. But there is another authority. Henry Clay, who 
 called himself the father of "the American system" of protection, 
 in reply to Mr. Calhoun, said : — 
 
 " With regard to the operation of this act [reduction of the tariff] 
 it is a great mistake to say that any portion of the embarrassment of 
 the country resulted from it. Other causes have contributed to this 
 result, and it is to be attributed to experiments made upon the cur- 
 rency ; also to the action of the States, which by plunging into 
 schemes of internal improvement have made debts abroad, and 
 thereby given a false appearance to the prosperity of the country, 
 and, when their bonds depreciated, the evils under which they now 
 suffer, as a consequence, ensued." 
 
 Here was a protectionist giving the true reason for all our panics, 
 1837, 1857, 1873, 1893, in disordered finance and inflated credit. • 
 
 In his excellent "Tariff History of the United States," referring 
 to the claim that financial panics resulted from reduction of tariff, 
 Professor Taussig says that this common assertion had its origin in 
 the writings of Henry C. Carey, "who has been guilty of many 
 curious perversions of economic history, but of none more remark- 
 
able than this : it has been transferred to the arguments of protec- 
 tionist authors and speakers in general, yet no fair-minded person 
 having even a superficial knowledge of the economic history of these 
 years can entertain such notions." It is one of Carey's triumphant 
 arguments, continually iterated in speeches, that our early statesmen 
 were in favor of collecting revenue so as to afford protection to in- 
 fant industries. 
 
 They might also assert without contradiction that a century ago 
 there were no statesmen in employment who did not believe in load- 
 ing foreign trade with every possible tax, and in protecting naviga- 
 tion with enactments so repressive that half its powers were 
 destroyed. Colonies were jealously restricted, lest they should con- 
 tribute to the profit of any but the home government. This was one 
 of the complaints of our fathers against England. It was the 
 statesmanship of the time. Theorists, like Turgot, Adam Smith, 
 Dean Tucker, and others, clearly explained the advantage of free 
 trade ; but men responsible for government continued in the mediae- 
 val way from doubt in respect to revenue, fear of losing trade, or, as 
 in our country to-day, influenced by powerful classes that insisted 
 upon special privileges. 
 
 Never in history had there been such continuous progress, social 
 equality and comfort among men, as on these shores in the years of 
 the eighteenth century preceding the Revolution. The wastes of 
 war were scarcely felt amid "the salutary neglect of government," 
 the individual ownership of land, the fertility of virgin soils, the 
 wealth of forests, the riches of the seas, and the exuberant freedom 
 of the New World. This progress and happiness had been inter- 
 rupted by the seven years' war of the Revolution and subsequent 
 disorders, so that at the adoption of the Constitution there was a 
 poor, discontented people, unwilling, if not incapable, of paying di- 
 rect taxes, but with such an equality of condition that taxes upon 
 consumption were more nearly equal than they can ever be again. 
 'Manufactures were then in their infancy, and might have asked any 
 degree of protection. Under these conditions, one is at first 
 thought amazed at the low tariff recommended by Washington's 
 administration. 
 
 It was upon so few articles that the schedule was printed on a 
 sheet about a foot square and hung up in each custom-house. The 
 
5 
 
 rate was less than lo per cent. Madison and Hamilton were 
 in favor of protection ; but they were practical statesmen who had 
 to provide not only the means to carry on the new government, 
 but also to fund a heavy debt and pay the interest on it. They could 
 not impose duties which would restrict importations. They were 
 fresh from making a Constitution which fixed the pov/er of taxation 
 in its first article, in these words : " Congress shall have power to 
 lay and collect taxes, duties, imposts, and excises, to pay the debts 
 and provide for the common defence and general welfare of the 
 United States." They would have considered that protection other 
 than incidental was laying taxes by Congress to be collected by 
 others, contrary to the letter of the law. Their resource for revenue 
 was commerce, the favorite pursuit of our people ; and their new 
 tariff worked wonders. Soon our ships were on every sea. Manu- 
 factures, which must always find their sure dependence upon the 
 skill and the invention of our people and natural resources, began to 
 spring up ; and agriculture flourished as in the age of gold. The 
 idea of a tariff for the sake of protection does not appear until the 
 debt and depression following the War of 1812 were felt in 1816 ; but 
 duties were still low, nor was it a political question. Massachusetts, 
 engaged in shipping, trading abroad, in the fisheries and in distill- 
 ing rum for export (and home use) from imported molasses, was the 
 strongest opponent of early protection. Her rising manufacturers 
 soon overcame her ship-owners ; and she joined in making the tariff 
 of 1828, when the greed of protectionists fairly equalled in rapacity 
 the present Pennsylvania school of penguidinous tax-sharers. 
 
 This tariff was for protection, but it worked both ways. The skill 
 and labor of the country were insufficient to supply its wants, and 
 revenue poured into a treasury embarrassed by surplus. It stimu- 
 lated speculation, and led men unskilled in manufacturing to under- 
 take difficult business, with the assistance of the public purse to eke 
 out their deficiencies. 
 
 There was an excuse for our fathers in 1828 which cannot be 
 pleaded for the protectionists of to-day. No trial of free trade had 
 ever been made on an important scale, though the prosperity of the 
 country under its first tariff should have been an effectual example. 
 England was our example, and she was burdened with every form 
 of protection. Each Parliament devised new imposts and restrictions 
 
to encourage every pursuit. At the end of the last century her 
 customs laws made six heavy folio volumes. Between 1797 and 
 1 81 5 six hundred separate acts were passed. All duties were 
 heavy, and many were prohibitory. The most oppressive were the 
 "corn laws," which directly affected us. In 1824 foreign wheat 
 was prohibited from entering the kingdom until the current price 
 was equal to yos. a quarter. Then a very high duty was imposed. 
 When this famine price reached 855-. a quarter, the duty was reduced 
 to its lowest, which was 5^-. 2d. per quarter. Under this protection 
 wheat had been 1125-., with general distress. Pauperism was 
 largely increasing, and English statesmen were fearful of the future. 
 The law-making power was in the hands of the land-owners. Land 
 was the favorite investment. The landlord, in exchange for the 
 corn laws, voted for navigation laws, like our present absurd restric- 
 tions, and agreed to all duties on manufactures. 
 
 England had much to sell, but she wanted to escape buying. She 
 used every device to lure foreigners to buy, and every prohibition to 
 prevent them from selling to her people. The phantom of the bal- 
 ance of trade v\^as ever before the eyes of her statesmen. 
 
 The prohibition of American wheat, and the general belief that 
 commerce was like a game of hazard, where one side must be the 
 loser, were good reasons for retaliation on our part. The national 
 debt disappeared. We had no great pension list. The army was 
 small. The navy, though it protected a commerce which extended 
 wherever winds swept or waters rolled, cost scarcely more in a year 
 than we now pay for one experimental iron box, full of machinery, 
 called a battle-ship, which is practically obsolete before it is put in 
 commission. We had a government with every tradition of economy. 
 Consequently, the treasury overflowed with money. This condition 
 made it hard to maintain protection against the earnest and well- 
 founded protests of the South, which then furnished nearly all the 
 exports, and enjoyed no protection. So the idea arose of distributing 
 the treasury surplus among the States. 
 
 It was first brought forward by Mr. Dickinson, of New Jersey ; but 
 the bill did not pass. General Jackson, who was a ♦protectionist, 
 revived the question in his first message. This led to much dis-- 
 cussion, with the conclusion that it was impossible to equitably 
 divide a surplus raised by a protective tariff. It was clear that the 
 
States producing the agricultural exports had their trade restricted 
 by tariffs, as commerce depends largely upon exchange. They paid 
 high prices to their manufacturing neighbors ; while a State like 
 Pennsylvania, which, then as now, was the heaviest beneficiary of 
 the tariff, would, by a distribution of surplus, add a bounty to her 
 excessive protection. This discussion convinced Jackson and a large 
 part of the country that the cotton States had a grievance, and, 
 though threats of nullification could not be listened to, it led to 
 reduction of the tariff in the act of 1833. 
 
 But there was a new embarrassment of riches in the growing dis- 
 position to purchase the public lands, and cash poured into the 
 treasury from this source. Here was another argument against 
 the tariff and alarm for protection. Mr. Clay introduced two bills, 
 one failing and one vetoed, to distribute among the States the avails 
 of land sales. 
 
 The question of "nullification," the dispute between the adminis- 
 tration and the United States Bank, the threatened war with 
 France, and the "removal of the deposits" pushed the division 
 question along ; but the surplus continued to increase, and, being 
 loaned by government to banks, encouraged every form of specu- 
 lation. 
 
 In speeches made in 1842 by Mr. Calhoun, to which I have 
 before referred, he argued that the tariff of the previous fifteen years 
 was the cause of all the political rancor and business disturbance 
 of the time and of the financial crash of 1837. 
 
 It made unequal burdens, privileged classes, and discontent. It 
 produced the treasury surplus, the use of which by the United 
 States Bank created the quarrel with Jackson. The removal of the 
 deposits to the State banks followed, which made great ease in 
 money, and led to loans upon land securities, vast issues of paper 
 money, a general inflation of all values, and the inevitable crash. 
 
 One may believe with Mr. Calhoun upon this question, and not 
 be far wrong. He certainly proved, by a mere recital of events, that 
 protection is the most pernicious error of government, and a large 
 surplus in the treasury is the most dangerous financial condition. 
 But Mr. Calhoun was the bitter enemy of General Jackson, and he 
 imputed too much evil to the "removal of the deposits" and to the 
 State banks, and did not include in his citalogue of evils the Whig 
 
measure of distribution of surplus among the States, of which I 
 shall speak later. When the United States Bank was chartered in 
 1816, it was one of its privileges that all money of the United 
 States awaiting disposal should be kept by it, with what proved to 
 be a troublesome clause, "unless the Secretary of the Treasury 
 should otherwise direct." 
 
 The more money the treasury had, the greater the deposits. Con- 
 sequently, the bank and its branches, its patrons and partisans, 
 favored all measures that added to the surplus. 
 
 It is unnecessary to go into the history of the quarrel between 
 the bank and General Jackson, which resulted in the order of the 
 Secretary of the Treasury that the accruing surplus should be 
 loaned to other banks, although upon this, from its permanent char- 
 acter, they were encouraged to issue currency and to make loans. 
 
 Many writers and speakers impute the speculation to the re- 
 moval of the deposits to the State banks, but that is a shallow con- 
 ^ elusion. 
 
 i The whole evil was in the surplus. It had begun to reach danger- 
 ous dimensions about the time of its removal. If it had been left 
 in the United States Bank and its twenty branches, it would have 
 , been loaned for the general speculation, and would have led to the 
 I same end. The United States Bank continued under the same 
 I management. It had a large surplus and a Pennsylvania charter. 
 It uttered no warning, furled no sail, and suspended specie payments 
 with all the other banks in 1837. It had a much worse record after 
 that than the State banks, for its officers obstructed resumption, 
 and, when times were better and bank credit was generally resumed, 
 it made a disgraceful failure. 
 
 The first cause was the surplus, which afforded facilities for specu- 
 lation no public would have resisted. If it had not been a wild 
 gamble in lands, it would perhaps have been something less reason- 
 able. The first movement following the extinction of the national 
 debt and the accumulation of the surplus was the inevitable increase 
 of banking. In 1820 banking capital was ^102,000,000. Though 
 times were prosperous, it only rose to ^110,000,000 in 1830; but in 
 1834, under the stimulus of a surplus, it rose to ^196,000,000, and 
 two years later it was ^281,000,000. 
 
 Government money flo\red in an abundant stream, which was 
 
dammed and sluiced to irrigate every speculation of the time. Over- 
 capitalized railroads with fraudulent construction companies, bloated 
 "industrials," silver mines with Sherman-act attachments, had not 
 been invented ; but our fathers were quite ready with more simple 
 methods. After the reaction from the waste of the war with Eng- 
 land, an era of prosperity and good political feeling set in, which 
 may be described, for twenty years, in the words of John Ouincy 
 Adams in his message of 1827. In the exuberant language com- 
 mon to the statesmen of the time, he implies that the productions 
 of our soil, the success of our commerce, the political virtue and 
 general superiority of our people, had. combined "to mingle in our 
 cup a portion of enjoyment as large and liberal as the indulgence of 
 Heaven has perhaps ever granted to the imperfect state of man 
 upon earth." Mr. Edward M. Shepard, in his admirable life of Van 
 Buren, speaking of these years, says, " We were a chosen people, 
 delighting in reminders from our rulers of our prosperity, and not 
 restless under their pious urgency of perennial gratitude." 
 
 There was a singular exemption from calamity of fire and flood, 
 an unbroken succession of good crops, a substantial immigration, 
 and a buoyant and hopeful emigration of Eastern people to the rich 
 soils of the West, a magical growth of towns, and a rapid advance 
 of the frontier. 
 
 The growth of steamboat enterprise was a feature of the time 
 greatly assisting development. The increase of cotton spinning 
 abroad, and the brisk demand for our staple, enriched the planters, 
 raised the price of slaves, and opened the lands of Alabama, Loui- 
 siana, Mississippi, and Arkansas to occupation. 
 
 Our early New England ancestors wrestled with a severe climate 
 and savage foes. They had to take their part in the wars which 
 established the British Empire. They turned from a thin, ungrate- 
 ful soil to the high emprise of commerce and the fisheries. Either 
 way was the risk which sharpened the intellect, and the toil which 
 hardened muscle and developed character. 
 
 But from 1820 to 1837 nature seemed to combine with fortune 
 in prodigal generosity, and extravagance took the place of labor and 
 frugality. Foreign capital, eager to share profits, was borrowed to 
 build roads and canals. The Erie Canal, completed in 1825, had 
 opened an imperial water way from the ocean to the Great Lakes. 
 
10 
 
 It seemed to the wisest and simplest alike that the movement 
 must continue in unbroken force, almost beyond the conjecture of 
 men. The public domain, as they loved to call it, seemed an ex- 
 haustless source of riches and power. 
 
 The delusion on this point is well expressed in a speech made by 
 Henry Clay in the Senate in 1832, in his bill to distribute the pro- 
 ceeds of the land sales among the States. He said : " Long after 
 we shall cease to be agitated by the tariff, ages after our manu- 
 facturers shall have acquired a stability and perfection which will 
 enable them to cope with the manufactures of any other country, 
 the public lands will remain a subject of deep and enduring interest, 
 and centuries hence representatives of our children may be deliber- 
 ating on laws relating to public lands." 
 
 Little could Mr. Clay foresee that at the end of the century the 
 protective system, of which he was the promoter, and which he 
 considered only a temporary policy, would, after thirty-six years of 
 greater privilege than he ever allowed, hold the agriculture and 
 labor of the country in its remorseless grasp, nominating Presidents, 
 controlling the Senate, and even purchasing the Presidency with 
 enormous contributions of money. 
 
 The public domain, the inheritance of children's children, has, 
 since Mr. Clay's words, been vastly increased by war and treaties, 
 and extended over regions then, unknown to the shores of the Pa- 
 cific ; but, squandered in vast grants to railway corporations, the 
 good land is now shrunk to a poor remnant, and the remainder is 
 arid wastes and mountain ranges. 
 
 The abundance of land would seem to forbid speculation, but that 
 was not the effect. Prior to 1834 the average sale for settlement 
 per annum for several years was ^2,500,000; but in 1835 it sud- 
 denly rose to $15,000,000, and the next year leaped to $26,000,000. 
 This was a revenue greater than the average cost of government, 
 and made all taxation superfluous. It seemed an illimitable income. 
 \ The business of importation felt the stimulus of flush times ; and 
 the customs revenue increased, so that the surplus mounted to 
 $40,000,000, which was loaned to speculators to buy more land, the 
 money paid into the treasury, and reloaned through the deposit bank 
 to the land-buyers. It was an earlier invention of " the endless 
 chain." 
 
II 
 
 Nor was speculation confined to wild land. It raged in "boom 
 towns," like the malarial Eden where Martin Chuzzlewit invested 
 his money, in sites upon rivers and lakes, in mid-prairie, and in 
 Maine pine-land. Foreign capital joined in this to some extent, 
 and a stream of gold flowed from Europe to our shores. No one 
 thought of the tariff as a political or business factor. It had been 
 taken out of dispute by the act of 1833, under the pressure of 
 the South and the threat of nullification, which, however bravely it 
 was resisted in senatorial speeches and Jackson's proclamation, 
 deeply affected the country, and brought about the compromise in 
 which Henry Clay agreed with Jackson on one hand, and the 
 nullifiers on the other, in a bill settling the question for nine years. 
 This act reduced the rates by tenths of the excess of duty over 
 20 per cent., to take effect in 1833, 1835, 1837, 1839, ^^^^^ ^^^ ^^' 
 maining excess in 1841 and 1842. Credit on duties was abolished, 
 and the ad valorem was "home valuation." This was not only a 
 strong tariff, but one to which all had agreed ; and it was a point of 
 political and sectional honor to be satisfied with it. Every business 
 man, importer, consumer, or manufacturer, could calculate upon it 
 for years. In this respect it was ideal. It will be noticed that, by 
 its terms, a reduction of only one-fifth of the excess of duty over 
 20 per cent, had been made, spread over three years, when the 
 panic began. The statement that this reduction caused the financial 
 panic is, however, not so absurd as the claim that a reduction which 
 took effect in 1894 caused a panic in 1893. But we all know that, 
 as the years roll on, the claims of the protectionists grow stronger. 
 
 The tariff of 1833 was unnecessary; but one support of a tariff 
 was retaliation, or, as General Jackson expressed it in his message 
 of 1832, "to counteract the regulations of foreign nations." 
 
 Meanwhile speculation bounded upward. The story of the Maine 
 lands speculation is a tradition to this day in some Massachusetts 
 families. Lands far beyond the reach of roads or rivers sold for 
 more than lots now bring in sight of great manufacturing cities. 
 The valuation of some cities rose hundreds per cent., or higher than 
 it was twenty years after. The real estate of New York was 
 assessed for more in 1836 than it was in 1851, though this was a 
 time of great activity, the height of the new emigration to the Pa- 
 cific, and a commerce in our own ships with all mankind. 
 
12 
 
 But, as if there were not ingredients enough mixed in this witches' 
 cauldron, a new measure of distribution of the surplus now held by 
 the banks was brought forward by the Whig statesmen, anxious to 
 share part of the popularity which filled the land in acclaim of Gen- 
 eral Jackson. This was the last and worst of the measures, and is 
 to be credited to the great names of Daniel Webster and Henry 
 Clay. It was demagogy pure and simple. 
 
 In May Mr. Webster brought in a bill which was much discussed 
 and amended before it was " reluctantly signed " by Jackson. As 
 passed, it ordered a " deposit " of the surplus above ^5,000,000 
 with the States, in quarterly instalments, beginning Jan. i, 1837. 
 The law read "deposit," to meet Jackson's objections to a gift; but 
 Clay declared it would never be recalled, and it never was. The 
 bill as introduced by Mr. Webster, and his speech on it, are in his 
 works, though many better speeches are left out. The country 
 was in the midst of a land speculation such as I have described, 
 with all values terribly inflated ; but Mr. Webster spoke of the 
 situation as one of unparalleled prosperity and of public land as 
 the cheapest safe object of investment. In one of his comprehen- 
 sive sentences he says of the cheapness of land as an investment, 
 " The sagacity of capital has found this out, and it grasps the oppor- 
 tunity." Jackson, Van Buren, then Vice-President, Silas Wright, 
 senator, and William L. Marcy, governor of New York, opposed it. 
 To Governor Marcy is due the credit of foreseeing evil, warning 
 the people against the pervading speculation, and refusing to charter 
 unnecessary banks. 
 
 In the July following the bill and the speeches of Webster and 
 Clay the administration, alarmed at the situation, issued a circular 
 requiring payment for land to be made in specie. This sensible 
 action was bitterly opposed by the Whigs, who favored expansion of 
 the banks. The speeches of Webster and Clay are astonishing- 
 reading. Mr. Webster did not consider the currency unsafely ex- 
 tended or the bank capital too large. He thought public lands as 
 investments were beyond question, and the prodigious inflation a 
 normal increase of all values. The specie circular was intended to 
 be a check to land speculation, and it so proved. It brought men 
 to the consideration of real values, and plunged all the fortune- 
 makers on paper into despondency. Congress and the press were 
 
^3 
 
 filled with their complaints. Overrated property began to find its 
 level. Money had been tight from excess of business ; but it now 
 became much scarcer, and lands held for speculation rapidly fell in 
 price. 
 
 There was great complaint. Mass meetings were held in the 
 cities, the administration was loudly threatened, and foreigners 
 began to try to get some of their money out. But the actual crash 
 did not come until the folly of the distribution of the surplus began, 
 Jan. I, 1837. The first instalment under the law was about $9,000,- 
 000. This money was supposed to be in some eighty banks, scat- 
 tered throughout the States. It was in fact loaned for business or 
 speculation upon indorsed notes and much of the stringency of the 
 market was brought about by the preparation of the banks to return 
 it to the government. Each succeeding three months another 
 instalment was due, and there was terrible apprehension. 
 
 A great part of the surplus was in frontier banks near the land 
 offices, and it had to be transferred regardless of the conditions of 
 trade, of rates of exchange, of economic necessities, or means of 
 transport. 
 
 The contraction of loans and discounts was the first disturbance. 
 Then came the change of the money from active capital into pack- 
 ages of specie and bank-notes, which, boxed and guarded, slowly 
 dragged on the coaches or mud wagons of the day, over rough roads, 
 from West to East, South to North, hither and yon, to reach State 
 treasurers, and await the action of legislatures. The second in- 
 stalment was paid with terrific financial agony. Land ceased to 
 be a security, the "sagacity of capital" was not able to realize. 
 Cotton and tobacco, our staple exports, fell, the stringency was in- 
 supportable, and on May 10, 1837, the New York banks suspended 
 payment, giving as their reasons the effect of the surplus distribu- 
 tion act and heavy calls for specie. This was followed by the sus- 
 pension of the banks in every State of the Union and wide-spread 
 bankruptcy. 
 
H 
 
 The Panic of 1857. 
 
 This financial crisis is attributed by protectionists to the reduction 
 of the tariff made in that year ; but such statements are only uttered 
 by political speakers and by party organs, and are not found in the 
 ofificial reports of State bank superintendents, examinations by 
 Chambers of Commerce or Bankers' Associations. 
 
 At the time the reduction of the rates of the tariff of 1846 was 
 made there was not a protectionist of importance in public life 
 except Horace Greeley and Henry C. Carey. 
 
 It cannot be said that they had all been converted or had passed 
 out of existence during the long prosperity of the free trade period, 
 because the class of men who seize the opportunity to share the 
 public taxes is instantly brought to light by the occasion. 
 
 This was quickly found to be the case at the meeting of Congress 
 in the winter subsequent to the panic, when it was evident that the 
 new tariff did not produce sufficient revenue. 
 
 Pennsylvania, long repressed, rushed to the front for more pro- 
 tection. Even her members of Congress, who had consented to the 
 reduction of duties and extension of the free list demanded by the 
 New England States, hurried to the new opportunity ; and a fresh 
 crop of protectionists sprang up in the congenial soil offered by the 
 situation. 
 
 The extended condition of credits and pressure for money which 
 precipitated the convulsion of 1857 had been felt for two years 
 preceding, and was the strongest argument for tariff reduction. 
 
 The treasury collected too much money, and the old trouble of a 
 tariff surplus embarrassed the money market. Business was very 
 good, and crops and prices were satisfactory. The clouds on the 
 horizon were in the facts that railroad building had been overdone, 
 and the banks of the city of New York, where the panic began, 
 whence it spread, and where it ended, were loaning far in excess of 
 safety. Because the government did not need money, and manu- 
 facturers did not want protection, the tariff rates were reduced, and 
 the free list extended. It must seem strange to some present, ac- 
 customed only to the loud clamor for protection, to be told that this 
 
15 
 
 reduction of the tariff was strenuously demanded by the manufactur- 
 ing interests of New England, and that freedom of trade was insisted 
 upon by Massachusetts representatives and senators. 
 
 In the final debate in the Senate on the bill of 1857, Henry Wilson 
 said : "The State I represent has deep interest in the modification of 
 the tariff. Her business men and her mechanics in all departments 
 of a varied industry want action by Congress. We of New England 
 believe that wool, hemp, flax, silk, lead, tin, copper, hides, linseed, 
 and other articles should be admitted duty free. We are for the 
 reduction of the revenue to the actual wants of an economical admin- 
 istration of the government for the depletion of the treasury now full 
 of hoarded gold." 
 
 In the House Mr. Morrill, of Vermont, a member of the Ways 
 and Means Committee, then in the prime of his usefulness, argued 
 for a reduction of duties. 
 
 The vote of New England on the bill is a clear indication of the 
 opinion of the time. 
 
 N. P. Banks was Speaker, and did not vote ; but the other nine 
 members voted for it. So did every member from New England but 
 one from Maine, who was absent ; and he had spoken in its favor. 
 
 It may be in order here to look at the causes which had combined 
 to turn New England from a belief in the saving power of protection 
 to a demand for free trade. 
 
 Her manufacturers had accepted with alarm and gloomy proph- 
 ecies the tariff of 1846, made, as they contemptuously declared, by 
 a Mississippi cotton planter, in which the highest rates of duty upon 
 woolens, cottons, and hardware were 30 per cent, ad valorem, and 
 upon most kinds of cotton fabrics 25 per cent. Every member of 
 Congress from New England, except Mr. Collamer of Vermont, voted 
 against this bill. 
 
 Certainly there must have been powerful reasons which had op- 
 erated to change the minds of a great body of intelligent, practical 
 men. Those reasons are found in the cold statistics of progress 
 between 1847 and 1857. They saw a prosperity more generally 
 diffused and fairly divided than has been known since, — capital and 
 labor equally satisfied, the number employed constantly increasing, 
 and wages continually rising.* 
 
 *A Boston newspaper, endeavoring to prove the fallacy of this statement, thus uses statistics: "In the 
 
i6 
 
 The rise of values was not confined to city property, as during the 
 past twenty-five years. The general prosperity was shared by the 
 country property, and farming lands, even of New England, were 
 favorite securities for loans. 
 
 Even after the panic of 1857 had reduced the volume of business, 
 so that the revenues at the reduced rates were insufficient, many 
 of the New England representatives opposed an increase of duties, 
 preferring that the government should borrow until times were 
 better. 
 
 The late Alexander H. Rice, then a member of the House, and 
 actively engaged in manufacturing, said, when the bill increasing 
 duties was under discussion in 1859: "The manufacturer asks no 
 additional protection. He has learned that the greatest evil, next to 
 a ruinous foreign competition, is excessive protection, which stimu- 
 lates a ruinous and irresponsible competition at home." 
 
 They wanted the happy medium of a tariff for revenue, which, as 
 John Sherman said sorhe years afterward, cannot be framed with- 
 out amply protecting all our industries. 
 
 From 1850 to 1857 the business of the whole country had been 
 prosperous, with a steady normal increase in every direction. 
 
 Agriculture, commerce, and manufactures seemed to share alike in 
 the progress of the time. 
 
 But in the midst of this prosperity there was over-trading, too 
 much railroad building, and the difficulty in respect to banking and 
 exchanges, which is the chronic and apparently incurable evil of 
 our country. 
 
 Business with California had absorbed a great deal of capital, and 
 brought about a system of long credits to accommodate shippers 
 around Cape Horn. Gold was coming in considerable amount ; but 
 there remained an enormous balance against the Pacific coast, 
 though it was a tempting and fairly safe business. 
 
 first four years of the Walker tariff the national debt was not only increased, not only doubled, not only 
 trebled, but absolutely increased fourfold." 
 
 I quote these words, which are arithmetically true, to show the disingenuous character of protectionist ar- 
 guments. The writer omitted to say that, the year the Walker tariff was made, war was declared with Mexico, 
 which lasted two years, employed 112,000 men, cost $100,000,000, and added to our country Texas, California, 
 Nevada, Utah, Wyoming south of Ihe 42d parallel, Colorado west of the mountains, and part of New Mexico. 
 
 Part of the expense of the war was paid from current income, but the debt rose from 515,000,000 in 1846 to 
 568,000,000 in 1851. The protectionist also omits to state that the debt stood at only 528,000,000 in 1857, having 
 been reduced $40,000,000 by the Walker tariff.] 
 
17 
 
 The Crimean war, declared in 1854, had greatly increased export 
 trade, and employed all the shipping we could spare, from which 
 there was a strong reaction in the peace of 1856. 
 
 From 1840 to 1850, owing to the hard money sentiment which 
 had followed the crash and experience of 1837, banking had not in- 
 creased relatively with trade. 
 
 New York had added 30 per cent, to her population and business, 
 with only ^300,000 increase of banking capital ; but in 1850 
 a new generation of men had come to the front, and the old meth- 
 ods revived. Banks were rapidly organized. In 185 1 anew bank 
 was started in the city of New York for every month in the year, 
 and in three years, $16,000,000 was added to its banking capital. 
 
 There were too many banks. They competed for business, paid 
 interest on country accounts, offered "facilities" and "accommoda- 
 tions." The clearing-house system was new and clumsy. The 
 managers of the new banks were inexperienced, and some of them 
 utterly unfit, though this may be said of some of the older men. 
 
 In August,. 1857, with no warning except such as might be found 
 in a condition of widely extended credits, the Ohio Life & Trust 
 Company, a chartered institution with banking privileges, $2,000,- 
 000 of capital, and the agency for a large section of the West, sud- 
 denly failed. It was found afterwards that its capital had been prac- 
 tically embezzled. 
 
 This failure, on a sensitive and tight money market, made a great 
 strain. One of the most troublesome features of our disjointed 
 banking system was the practice of a great number of country 
 banks, whose notes were redeemed in New York, of keeping heavy 
 balances there for the sake of the interest. These deposits were 
 now a source of embarrassment, for they were at once demanded. 
 
 The time called for cool judgment and bold, concerted action on 
 the part of the New York banks. But it proved that the country 
 depended upon a number of flabby, retired merchants, who in those 
 days were the men from whom bank presidents were taken ; and 
 their ignorant and timid action increased the alarm and stringency. 
 
 Each bank sought to save itself by calling in loans and refusing 
 discounts. Merchants had to draw out their deposits. 
 
 In his report on the panic the New York State superintendent 
 of bankins: said : — 
 
i8 
 
 "All community of interest, all concert of action as the crisis ap- 
 proached, was apparently, if not actually, abandoned. . . . The sus- 
 pension was preceded by a desperate struggle among the banks 
 themselves, and distrust was more apparent among them than with 
 the public." 
 
 A prominent newspaper made a sensational feature of a weekly 
 list of bankruptcies and rumors, widely copied by journals from Bos- 
 ton to New Orleans. 
 
 This is said to have operated to cut off remittances to New York 
 from all parts of the country by debtors who owed suspended firms, 
 or those whom they expected soon to see in the panic list. 
 
 All that fortunately small class of merchants and traders who are 
 looking for such opportunites seized the occasion to fail. 
 
 As misfortunes always multiply, there was delay in the receipt 
 of treasure from California. The discovery of a heavy fraud by a 
 paying-teller roused suspicion of other defalcations ; and the New 
 York banks continued to tighten the market by the refusal of 
 discounts, until by the first of October there had actually been a 
 reduction of the discount line of about 30 per cent. 
 
 Bitter feeling was engendered between the merchants and the 
 banks, and deposits were so generally drawn out that on the 14th of 
 October the New York banks suspended specie payments. It was 
 a day of intense gloom and excitement, but it was followed by im- 
 mediate relief of tension and a rapid recovery of confidence. 
 
 It was felt all over the country that it was a bankers' panic, and 
 no one thought that the method of collecting revenue at the cus- 
 tom-houses had anything to do with it. But it was soon seen that 
 the panic affected revenue ; for it caused a great reduction of impor- 
 tations for the remainder of the fiscal year, and embarrassed the 
 treasury. 
 
 This led to the revival of protectionist pretensions, to which I 
 have already referred. 
 
 After the pressure was relieved by the suspension of specie pay- 
 ments, there was much consultation of publicists, financiers, and 
 merchants. Meetings of Boards of Trade, Chambers of Commerce, 
 and other public bodies discussed the causes of the panic, and pro- 
 posed measures of prevention in the future. 
 
 All of these discussions treated the disturbance as a financial and 
 
credit difficulty, to be prevented by sounder methods of banking. 
 No mention whatever was made of the tariff.* 
 
 I will quote one great authority, the Hon. Nathan Appleton. I 
 select him because he was a notable representative of that school of 
 public-spirited, "all-around men," financiers, merchants, and manu- 
 facturers, who built up the interests of New England. He was 
 also a good public speaker, and an able writer upon currency and 
 banking. 
 
 In an article published in the Advertiser, Oct, 12, 1857, Mr. 
 Appleton says : " During the present year we have been going on 
 very smoothly under full sail, when, about the middle of August, a 
 sudden squall strikes us, which increases to a hurricane, threatening 
 even to swamp the ship itself. The question arises : How comes all 
 this about ? What is the cause } " Mr. Appleton then proceeds to 
 show that New York was " the great central banking power. She 
 sets the key-note. If she expands, the whole country expands. If 
 she contracts, it is felt to the remotest extremity." 
 
 He then shows that this great responsibility is divided between 
 fifty-five banks, with no leader, and that, under the circumstances 
 which I have related, they contracted their loans between July and 
 October 30 per cent. " Tremendous ! Was the like ever known 
 in the history of banking .? I have no hesitation in saying it is this 
 continued contraction of the New York banks since the 5th of Sep- 
 tember, without the slightest necessity, which has brought about the 
 present disastrous crisis. The New York banks have been acting 
 under a panic. That panic they have communicated to others until 
 there is a loss of confidence. . . . The question," continues Mr. 
 Appleton, "now arises, What is the remedy.? Nothing can be 
 plainer. The New York banks must retrace their steps, and 
 speedily, or it will be too late. They should at once increase their 
 discounts ten or fifteen millions of dollars. No other course will 
 set the wheels in motion." 
 
 * This statement is objected to. It should be taken in connection with what I have already said about 
 statements uttered only by political speakers and party organs. Such utterances can undoubtedly be cited, 
 but not from disinterested parties. Those recently published in a Boston newspaper serve to show the mis- 
 takes of their authors. A Rhode Island Congressman, for instance, asked, " How can it be expected that the 
 American manufacturer would again put his spindles and looms in operation?" Yet the spindles and looms 
 were put in motion again almost immediately, witli great prosperity for New England manufacturers as the 
 result. While Congress was revising tire tariff for more^revenue and protectionists were trying to seize the op- 
 portunity, the year 1859 was one of the most prosperous the country had ever known. 
 
20 
 
 It was remarked that a similar panic might have occurred during 
 the fall pressure for money in either 1855 or 1856, as the loans in« 
 those years were within $10,000,000 of the sum in August, 1857. 
 To steady the money market in the future, the New York banking 
 superintendent advised that the banks maintain an average of 20 
 per cent, of their deposits in coin.; Jand' in March, 1859, when the sky 
 was clear and conditions normal, forty-two of the New York banks 
 agreed to discontinue payment of interest on deposits, and to keep 
 on hand at all times an amount of coin equal to not less than 20 per 
 cent, of their net deposits of every kind. 
 
 Let me add that during this panic there was no trouble caused by 
 the currency under the New York State system. The contraction 
 of the issue was very small, less than a million and a half. The re- 
 port of the State superintendent says, " This would seem to clearly 
 demonstrate that, whatever may lead to a suspension of specie pay- 
 ments, the currency of our banks is not an element in its produc- 
 tion." In all New England, bank paper circulated freely after the 
 suspension of specie payments. No failures of State banks occurred 
 of consequence in New England or the Middle or Southern States. . 
 The prices of cotton and grain were but temporarily affected, and 
 the real estate market suffered but little. 
 
 J 
 
 [Issued by the New England Free Trade League, June, 1896.]