Chapter 8: Banking and Currency

Chapter 8: Banking and Currency

Objectives: We will examine the economy after the War of 1812 and the development of the Second National Bank of the U.S. We will examine the development of transportation in post War of 1812 America. We will study the expansion westward of American settlers and the motives for this expansion during this era.

Verse of the Day: o Deu_27:3 And thou shalt write upon them all the words of this law, when thou art passed over, that thou mayest go in unto the land which the LORD thy God giveth thee, a land that floweth with milk and honey; as the LORD God of thy fathers hath promised thee.

Banking, Currency, and Protection: The War of 1812 stimulated the growth of manufacturing by cutting off imports but it also produced chaos in shipping and banking. And it exposed dramatically the inadequacy of the existing transportation and financial systems.

Banking, Currency, and Protection: They issued a huge amount of bank notes that did not always have the backing of gold and silver to redeem them. Their actual value was dependent on the reputation of the bank and it caused confusion and made honest business difficult and counterfeiting easy.

Banking, Currency, and Protection: The aftermath of the war saw the emergence of a series of political issues connected with national economic development. The war time experience saw the need for another national bank. After the expiration of the first Bank of the United States charter in 1811, a large number of state banks had begun operations.

Banking, Currency, and Protection: Congress dealt with the currency problem by chartering the Second Bank of the U.S. in 1816. It was essentially the same institution that Hamilton founded in 1791 except that it had more capital than the one before. The national bank could not forbid state banks to issue currency but its size and power enabled it to dominate the state banks. It could compel them to issue only sound notes or risk being forced out of business.

Banking, Currency, and Protection: Congress also acted to promote the already booming manufacturing sector of the nation s economy. Manufactured goods had been scarce during the war that if any factory could start operation would be virtually assured of quick profits. American Textile industry experienced dramatic growth most of the factories were in New England, produced only yarn and thread; families operating hand-looms in their homes, did the actual weaving of cloth.

Banking, Currency, and Protection: Boston merchant Francis Cabot Lowell after examining textile machinery in England; developed a power loom that was better than its English counterpart. In 1813 Lowell organized the Boston Manufacturing Company and at Altham Massachusetts founded the first mill in America to carry on the process of spinning and weaving under a single roof.

Banking, Currency, and Protection: Lowell s company was an important step in revolutionizing American manufacturing and in shaping the character of the early industrial work force. But the end of the war suddenly dimmed the prospects of American industry. British ships determined to recapture their lost markets swarmed into American ports and unloaded cargoes of manufactured goods many priced below cost.

Banking, Currency, and Protection: The American industries cried out for protection against these tactics, arguing that they needed time to grow strong enough to withstand foreign competition. In 1816, protectionists in Congress won passage of a tariff law that effectively limited competition from abroad on a wide range of items, among the most important of which was cotton cloth. There were objections from agricultural interests, who would have to pay higher prices for manufactured goods as a result. But the nationalist dream of creating an important American industrial economy prevailed.

Transportation: The nations most pressing need after the war was a better transportation system. Without one, manufacturers would not have access to the raw materials they needed or to domestic markets.

Transportation: So an old debate resumed, should the federal government help to finance roads and other internal improvements? There was precedence in several projects that the Federal Government already committed to. In 1807, Jefferson s secretary of treasury, Albert Gallatin proposed that revenues from the Ohio land sales should help finance a National road from the Potomac River to the Ohio River. Both Congress and the president approved.

Transportation: After many delays construction began in 1811 at Cumberland, Maryland on the Potomac. And by 1818, this highway with a crushed stone surface and massive stone bridges ran as far as Wheeling, Virginia on the Ohio River. The roads brought heavy traffic and despite high tolls, the roads made transportation costs lower than before and manufacturers were actually able to move textiles from the Atlantic seaboard to the Ohio Valley in unprecedented quantities.

Transportation: In the Great Lakes steam-powered shipping expanded rapidly. The development of the Steamboat lines was well under way before the War of 1812, but thanks to the technological advances of Robert Fulton and others, steamboats became widely used. By 1816, river streamers were online and these boats were carrying far more cargo than other forms of river transportation combined.

Transportation: The development of the steamboat stimulated the agricultural economy of the West and the South by providing much readier access to markets at greatly reduced cost. They enabled eastern manufacturers to send their finished goods out west. Despite the progress, both Atlantic shipping and costal roads became choked with traffic. Long lines of wagons waited for a chance to use ferries that were still the only means of crossing most rivers.

Transportation: There were serious shortages of goods that normally traveled by sea and prices rose to new heights. Rice cost three times as much in New York as in Charleston. Flour costs three times as much in Boston as in Richmond-all because of the difficulty of transportation. Militarily the lack of good roads held American forces from campaigns in both the Northern and Western frontiers.

Transportation: In 1815 President Madison suggested a constitutional amendment to give Congress authority to create roads and canals. Representative John C. Calhoun introduced a bill that would use funds owed to the government by the Bank of the United States to fund internal improvements.

Transportation: Congress passed Calhoun s internal improvements bill but Madison on the last day in office vetoed it. He supported the purpose of the bill, he explained but he still believed that Congress lacked authority to fund the improvements without a constitutional amendment. It remained to the State governments and private enterprise to undertake the tremendous task of building the transportation necessary for the growing American economy.

EXPANDING WESTWARD: One reason for growing interest in internal improvements was the sudden and dramatic surge in westward expansion in the years following the War of 1812. By the time of the Census of 1820, white settlers had pushed well beyond the Mississippi River and the population of the western regions was increasing more rapidly than that of the nation as a whole.

The Great Migrations: The westward movement of white American population was one of the most important developments of the nineteenth century. It had a profound effect on the nation s economy. Bringing vast new regions into the emerging capitalist system. It had great political ramifications which ultimately became a major factor in the coming Civil War. It thrust people of different cultures and traditions into intimate (and often disastrous) associations with one another.

There are several reasons for this expansion. THE FIRST REASON: The pressure driving Americans driving out of the East came in part of the continued growth of the nation s population. The population doubled between 1800 and 1820 through both natural increase and immigration. The growth of the cities absorbed some of that increase but most Americans were still farmers. The agricultural lands of the East were now largely occupied and some of them were exhausted. In the South, the spread of the plantation system and of a slave labor force limited opportunities for new settlers.

The Second Reason for Expansion: The west itself became increasingly attractive to white settlers. The War of 1812 helped diminish but did not wholly eliminate one of the traditional determents of western expansion: Native American opposition. And in the aftermath of the war, the Federal Government continued its policy of pushing the remaining tribes farther and farther west. A series of treaties in 1815 wrestled more land from the Indians. The government also erected a chain of forts to protect the frontier.

There are several reasons for this expansion. It also created a factor system by which government factors (or agents) supplied the tribes with goods at costs. This not only worked to drive Canadian traders out of the region; it also helped create a situation of dependency on the factors that made Native Americans themselves easier to control.

There are several reasons for this expansion. With the land secure settlers came through either via the Ohio and Monongahela Rivers via flatboats and overland through wagons, handcarts, etc.

The Plantation System in the Southwest: Cotton became the basis of the new agricultural economy. The Old South had lost much of their fertility through overplanting and erosion but in the Southwest there was a vast tract of land good for growing cotton that attracted ambitious farmers seeking to grow the crop.

There are several reasons for this expansion. The growth of Southern settlement spread cotton, plantations, and slavery. The First arrivals in an uncultivated region were usually small farmers who made rough clearings in the forest. But wealthier planters soon followed. They bought up land cleared or partially cleared land and the original settlers moved farther west and started over again.

There are several reasons for this expansion. The large planters made the westward journey in great caravans unlike the original pioneers. Success in the wilderness was not ensured even for wealthy settlers. But many planters soon expanded and ultimately some achieved to expand and build up aristocratic plantations with mansions replacing the initial log dwellings.

There are several reasons for this expansion. o The rapid growth of the Northwest and Southwest resulted in the admission of four new states to the Union. o In the immediate aftermath of the War of 1812; Indiana, Mississippi, Illinois, and Alabama.

Trading and Trapping in the Far West: o Not many Whites had much knowledge and interest in the far western areas of the continent. o But a significant trade nevertheless began to develop between these far western regions and the U.S. beginning early in the nineteenth century and growing steadily for decades.

Trading and Trapping in the Far West: o Mexico s independence from Spain in 1821 opened the northern territories to trade with the U.S. o American traders poured into the region overland into Texas and New Mexico. o By sea into California, merchants from the U.S. quickly displaced both Indian and Mexican traders that previously dominated.

Trading and Trapping in the Far West: o A steady traffic of commercial wagon trains was moving back and forth along the Santa Fe Trail between Missouri and New Mexico. o Fur traders created a wholly new commerce with the west. o Before the War of 1812 John Jacob Astor s American fur Company had established Astoria as a trading post at the mouth of the Columbia River in Oregon. o But when the War came, Astor suddenly sold to a British Company based in Canada and after the war set up shop in the Great Lakes area and eventually extended them westward to the Rockies.

Trading and Trapping in the Far West: o Fur traders at first bought fur from the Indians, but increasingly, white trappers entered the region and began to hunt beaver on their own. o Substantial number of Anglo Americans and French Canadians moved deep into the Great Lakes region and beyond to join the Iroquois and other Indians in pursuit of furs.

Trading and Trapping in the Far West: o As the trappers or mountain men moved west from the Great Lakes region they began to establish themselves in what is now Utah and in parts of New Mexico. o In 1822 Andrew Henry and William Ashely founded the Rocky Mountain Fur Company and recruited White trappers to move permanently into the Rockies in search for furs.

Trading and Trapping in the Far West: o These mountain men lived isolated lives but were closely bound up with the expanding market economy of the U.S. o Some were employees of the Rocky Mountain Fur Company earning a salary in return for providing a steady supply of fur. o Others were nominally independent but relied on the companies for credit and still others trapped independently on their own but the merchants from the East received the bulk of the profits from the trapping industry.

Trading and Trapping in the Far West: o Trappers and mountain men lived peacefully and successfully with the Indians and Mexicans they shared land with. o Perhaps two-thirds of white trappers married Indian or Hispanic women while living in the West. o But not all were peaceful. o Jedidiah S. Smith a trapper led a series of forays deep into Indian territory resulting in disastrous battles with Indians and he was ultimately killed in a expedition to Oregon.

Eastern Images of the West: o American East was dimly aware of the world of trappers. o Smith and others became the source of dramatic and often exaggerated popular stories. o Few tappers wrote about their lives.

Eastern Images of the West: o More important in increasing eastern awareness of the West were explorers many of them dispatched by the U.S. government with instructions to chart the territories they visited. o In 1819 and 1820, Stephen H. Long led nineteen solders on a journey up the Platte and South Platte Rivers through what is now Nebraska and eastern Colorado.

Eastern Images of the West: o Smith wrote an influential report on this trip, including an assessment of the region s potential for future settlement. o Smith published a map of his expedition and labeled the Great Plains the Great American Desert.