During the War of 1812, some merchants in New Orleans tried to blame the Laffites and their establishment at Barataria for a shortage of specie. It is typical of people who themselves deal in bank notes without cover that they try to blame others who are more fiscally responsible for their own problems.
The United States was not on a solid financial footing during the War of 1812, but after the war, things became much worse. In 1816 the Second Bank of the United States was established. And in 1819, we had our first major Panic, aptly named the Panic of 1819.
What were the causes of the Panic of 1819? Those in the know will name a few: a reduction in the price of staple goods like cotton due to a resurgence of production in Europe which hurt growers in the U.S., the printing of bank notes without cover by various banks, and the eventual tightening of the money supply when the United States needed to withdraw two million in specie from the Second Bank of the United States to make payments in October of 1818 on its notes for the Louisiana Purchase, promissory notes made out to France but now owned by an English bank. After this withdrawal, there was not enough specie to cover the bank's obligations.
The problem for ordinary people was that while banks that were in debt were not forced to pay their creditors in specie, and the Bank of the United States, though a supposedly private entity, was exempt from the laws of the states and could not be foreclosed on, ordinary people still had to pay their own debts, or suffer the consequences.
When a tighter fiscal policy was enforced at Second Bank of the United States, the saying went that the bank was saved, but the people were ruined.
Now, many populist agitators see this as an issue between the "wicked rich" and the "victimized poor", but this way of conceptualizing the problem hides the real issue: that not all poor people are treated the same. If we go by net worth alone, the Second Bank of the United States and all the other reneging smaller banks that relied on it, were actually poorer than an ordinary person who had a few coins in his pocket, because they had a negative net worth. The banks, including the very biggest one, should by rights have been allowed to collapse and their corpses fed to their creditors.
President Monroe is thought to have been a fiscally conservative president, because he did not pass relief for the "poor". But how fiscally conservative is it to allow a bank to reneg on its obligation to depositors? The very poorest of the poor were the banks themselves. They should have been allowed to fail.
Would the United States not have fared better under pirates who dealt exclusively in silver and gold and made change in bits and pieces?
|the value of money used to be in the metal and people made change by cutting it|