|Watercolor, The President’s House, by George Munger, 1814-1815.
The War of 1812 is as a sidebar to American history. There are no “War of 1812 Re-enactors” — and it lacks the grandeur and lock on the popular imagination of the War for Independence, the War Between the States, World Wars I and II, and the Cold War. It is remembered for the Star Spangled Banner, for the burning of Washington by the British, and the Battle of New Orleans immortalized in the lyrics of Johnny Horton. It was, after all, a rare American victory, commanded by General Andrew Jackson, over the British:
Yeah, they ran through the briars and they ran through the brambles
And they ran through the bushes where a rabbit couldn't go.
Since the Treaty of Ghent ending the war had already been signed, the battle was militarily inconsequential. What was consequential was America’s national debt, which rose from $45M at the start of the war to $127M by the end of 1815. The American government had neither a fiscal mechanism to fund the war through taxes or a monetary system through a national bank to fund the war through indebtedness. According to The New York Times Upfront, the debt was equivalent to a cost of approximately $1.1 billion in 2007 dollars – about one third-the cost of the Revolutionary War.
The war left the country in a fiscal mess. According to Donald R. Hickey’s The War of 1812: A Forgotten Conflict, Bicentennial Edition (University of Illinois Press, p. 233)
“The government’s financial woes were further compounded by the suspension of specie payments in the summer of 1814. After the dissolution of the national bank in 1811, the number of state banks had risen dramatically, from 117 in 1811 to 212 in 1815. According to the Washington National Intelligencer, new banks had sprung up ‘like a crop of mushrooms in the night,’ and many were ‘unincorporated and irresponsible.’ Without a national bank to restrain them, the banks greatly increased their note issue, both to accommodate needy customers and to invest in war bonds. From 1811 to 1815 toe face value of bank notes in circulation rose from $66 million to $115 million.
“During the same period the amount of specie in the country actually declined. The dissolution of the national bank drained $7 million to pay off European stockholders, and during the war specie flowed from middle and southern states to new England and from there into Canada to finance illegal imports and the purchase of British government notes and British bills of exchange. According to contemporary reports, $2 million in gold was shipped from the United States to Canada in early 1814 and another $1.8 million the following summer. ‘The Specie is constantly going in Cart Loads to Canada,’ said a Massachusetts Federalist. …
“With their specie reserves shrinking and their note issue expanding, many banks found themselves in a precarious position. In August 1814 the British invasion of the Chesapeake started a run on the banks in Washington and Baltimore, forcing them to suspend specie payments. Other banks in the middle and southern states quickly followed suit, and eventually those in the West did, too. Only in the New England banks, which had large specie reserves and were closely regulated by state law, held out. But even they had to retrench in order to remain solvent.
“Once the banks went off a specie-paying basis, they stopped honoring each other’s notes. As a result, the administration could not longer transfer funds from one part of the country to another. Although government surpluses accumulated in some banks in the middle and southern states, federal funds were quickly exhausted in Boston, New York, and Philadelphia, where most of the interest on the national debt was due. The suspension of specie payments hurt the government in another way. Bank paper circulated at a 15- 30 percent discount, and yet the Treasury accepted it at par for taxes and loans. With only depreciated bank notes and treasury notes coming into the Treasury, the government had no currency that could readily be used to meet its obligations. For all practical purposes, public credit was extinct and the government was bankrupt.”
To reestablish a semblance of solvency, Secretary of the Treasury Albert Gallatin imposed whiskey and salt taxes (of the sort he had denounced under the Washington and Adams Administrations) as well as direct taxes on land and slaves. In 1813, without a national bank (and without cooperative solvent regional banks), Secretary Gallatin initiated the public bidding systems raised a subscription for 57% of a $16,000,000 loan, and succeeded in funding the deficit of $69 million by bond issues. The desperation of the circumstances made it necessary to charter a new, Second, Bank of the United States, apparent and weakened the traditional opposition of Jeffersonians to reincarnating the creation of Alexander Hamilton. This charter issued in 1816.
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