A History of the American People

were bills of exchange paid for by other bills of exchange, which thus raced around rapidly from
one debtor to another, accumulating interest charges and yielding less and less of their face
value. It was a typical bit of 19th-century ruin-finance, beloved of novelists like Thackeray and
Dickens, who used such devices to get their gullible heroes into trouble. This kind of paper
explains why needy people actually got so little of the sums they undertook to repay. But then
they probably could not repay anyway, which explains why the pyramid was bound to collapse.
Jones' easy-credit policy was further undermined by the activities of the SBUS's branch
offices, some of which were run by crooks. In Baltimore the branch was run by two land
speculators, James A. Buchanan and James W. McCulloch, who financed their speculations by
taking out unsecured loans from their own bank ($429,049 and $244,212 respectively, with the
First Teller borrowing a further $50,000). In effect, this was to put their hand in the till. Here was
a typical example of the general credit expansion Jones encouraged, raising the debt on public
land from $3 million in 1815 to over five times that amount ($16.8 million) three years later.
Some of this went into house purchases-it was the first urban boom in US history too. As many
of the Latin American goldmines had been shut by their own war of independence against Spain,
which was now raging, the relation of paper to gold was astronomical. Moreover, all the other
banks followed Jones' example. Sensible men warned of what would happen. John Jacob Astor,
who had now used his fur empire to build up a massive holding in Manhattan real estate, accused
the SBUS of provoking runaway inflation. In a letter to Albert Gallatin (March 14, 1818) he said
the SBUS had made money so cheap that everything else has become Dear, & the result is that our Merchants, instead of shipping Produce, ship Specie, so that I tell you in confidence that it is not without difficulty that Specie payments are maintained. The different States are going on making more Banks & and I shall not be surprised if by & by there be a general Blow Up among them.' Astor was right about the state banks: Hezekiah Niles recorded that in 1815-19 all you needed to start a bank issuing paper money were plates, presses, and paper. It was enough to drive genuine counterfeiters out of business, though they still managed (according to Niles) to produce a lot of forged notes too. He said that counterfeit notes from at least 100 banks were freely circulated in 1819. Many of the new banks were in converted forges, inns, or even churches, thus adding blasphemy to gimcrack finance. By 1819 there were at least 392 chartered banks, plus many more unchartered ones, and the debt on public lands had jumped another $6 million to stand at $22 million. Suddenly, the cotton bubble burst, as Liverpool cotton importers, alarmed by the high prices, started shipping in Indian raw cotton in huge quantities. In December January 1819 the price of New Orleans cotton halved, and this in turn hit land prices, which fell from 50 to 75 percent. The banks then found themselves with collateral in land worth only a fraction of their loans, which were now irrecoverable. So the banks started to go bust. Jones compounded his earlier errors of inflation by abruptly switching to savage deflation, ordering the branches of the SBUS to accept only its own notes, to insist on immediate repayments of capital as well as interest, and by calling in loans.' This immediately doubled and trebled the number of state- chartered banks going bust, and the SBUS, their main creditor, secured their assets-the land- deeds of hundreds of thousands of farmers. Many congressmen, seeing the future of their electors thus put into the power of a wicked central bank they had never wanted anyway, turned with fury on Jones. A Congressional committee soon discovered the Baltimore business. Jones and his entire board were forced to resign and an experienced money-man, Langdon Cheves (1776-1857), took over in March 1819 to find the SBUS what he calleda ship without a rudder or sails or mast ... on a stormy sea and