Why Specie Flowed to New England

Boston’s Federalists crippled Madison’s war efforts economically.  First, using their newspapers and Congregationalist pulpits, they urged New Englanders not to subscribe to government loans—the war bonds of the era.[1]

Carey noted that most Federalists from the mid-Atlantic did not take part in the Bostonian boycott, and many citizens and merchants from that region subscribed to government loans. [2]

Smuggling did what the boycott could not.  Large quantities of European goods were smuggled into Boston.  Citizens in the mid-Atlantic and South bought foreign goods from Boston. [3]

Specie (hard money or gold coins) flowed from New York, Philadelphia, Baltimore and points south, to Boston to buy those goods.  The problem was compounded by the lack of a national bank.  Congress failed to re-charter the First Bank of the United States in 1811.  State banks multiplied from 117 in 1811 to 212 in 1815.  Lacking the restraint of a national bank, state banks issued more notes.  The face value of bank notes in circulation increased from $66 million to $115 million from 1811 to 1815. [4]

Carey noted, “Wagons were loading with specie at the doors of our banks every week.  There have been three wagons at one time loading in Philadelphia….Bankruptcies took place to a considerable extent…some who had subscribed to the loans were unable to comply with their engagements:  and others were withheld from subscribing by the general pressure for money.”[5]

In August 1814, three months before Carey wrote the Olive Branch, the British invaded the Chesapeake.  That started bank panics in Washington and Baltimore.  Banks in those towns suspended their payment of specie.  Banks in the mid-Atlantic, South and West followed their example.  Without hard currency, banks no longer honored notes from other banks.[6]

If that were not enough, hard currency flowed from New England to Canada.  It was used to buy imported goods, British government notes and British bills of exchange.

Historian Donald Hickey notes, “Bank paper circulated at a 15 to 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.”

Who Mathew Carey Singled Out in the Last Chapter of the Olive Branch

Look for it Monday, July 8