Financial History Issue 124 (Winter 2018) | Page 41
Presenting his proposals to the Board in
early April, Cheves focused on six actions
that he felt were needed. The first three
addressed the problem of the Bank’s over-
issue of notes — particularly in the South
and West — that had led to the flood of
bank notes flowing to eastern branches.
He proposed that southern and western
branches note issue be restricted and that
they be instructed to issue no notes larger
than $5. The parent bank was to enforce
the order by stopping its purchase and
collection of exchange from these regions.
Additionally, the reductions in loans
ordered in July were to continue and
the Treasury was to be asked to provide
advanced notice of its intent to withdraw
funds from a location that had no govern-
ment deposits, thus giving the Bank time
to make the necessary transfers to meet
the Treasury’s needs.
To rebuild the Bank’s specie holdings,
Cheves proposed that balances due from
state banks be reduced quickly and col-
lected in specie. He also initiated an effort
to obtain specie abroad, ultimately bor-
rowing $2 million in London and Amster-
dam payable in three years. The final
element of his plan also protected the
Bank’s specie holding by requiring that
“debentures be paid in the same currency
for which they were originally issued.”
On April 9, the Board approved the
plan. Implementation began immediately
including, importantly, the Treasury’s
agreement to give the requested advanced
notice of withdrawals. The impact was
swift, and by the end of May the crisis was
over and the Bank secure in its position.
Dealing with capital issues required
longer-term actions. Cheves ordered that
dividends should be stopped until the
Bank’s original capital was restored, much
to the dismay of many stockholders. It
took until January 1821 for the Board to
determine that previous losses had been
covered and that the capital stock was
restored. At that time a dividend of 1.5%
was declared. 1 Cheves set November 1,
1819, as the date which branch capital
was to be fixed. Although these levels
were provisional, combined with the other
actions, they helped to bring order to the
institution’s operations.
Saving the Bank with his initial actions
and ensuring its continued health by pur-
suing on-going restrictions on the Bank’s
ability to make loans and expand its note
issue did not win Cheves many friends
among stockholders, with state banks and
their supporters and, most importantly,
among the public and many politicians.
As William Gouge suggests in his 1833
work, A Short History of Paper Money and
Banking in the United States, “The Bank
was saved and the people were ruined.”
Adding to Cheves’s problems was his
lack of experience as a banker. While
pursuing restrictive actions on many
fronts, he also continued some practices
of his predecessor, including discount-
ing notes for long durations and making
loans on the security of the Bank’s stock.
Such actions combined with the animos-
ity existing toward the Bank and Cheves
meant that, as Historian Ralph Catterall
suggests, Cheves “had exhausted his use-
fulness to the institution.”
Analyzing the impact of the restrictive
policies pursued by Cheves, economic his-
torian Edwin Perkins finds that “the mon-
etary policies he pursued after the crisis
[The Panic of 1819] had materialized were
inappropriate.” An institution the size of
the Second Bank with the power to deter-
mine the money supply could have used
some of its accumulated specie reserves to
expand notes and deposits. Perkins indi-
cates that the Bank had accumulated over
$7 million in specie by the end of 1820 and
that “at least $4 million of that total repre-
sented excess reserves…”
Had these been used to back additional
notes and deposits, Perkins estimates that
the country’s money supply would have
increased by as much as 17%. As a result,
Perkins suggests that Cheves and the Sec-
ond Bank “could have alleviated much
hardship, prevented hundreds of failures
and bankruptcies, and perhaps led the
country out of the recession before it
became a depression.”
In his five years as president of the Bank,
Cheves had accomplished much — pulling
the institution from the brink of ruin and
putting its operations on sound financial
footing. However, this success came at
a heavy cost. Facing continued hostil-
ity from state banks resulting from his
policies and facing increasing opposition
from directors and stockholders result-
ing from his restrictive policies and low
dividends, Cheves, believing his work was
done, retired in October 1823. The Bank’s
new president, Nicholas Biddle, inherited
a stable, sound institution but one, as he
would learn, that carried the burden of
its tumultuous beginnings and of Cheves’
restrictive policies.
After leaving the Bank, Cheves contin-
ued living in Philadelphia, his wife’s home-
town, and later in Lancaster before return-
ing to South Carolina in 1829 to supervise
his rice and cotton plantations and enjoy
his large family. Besides serving as a com-
missioner on the Board established to settle
the claims of American citizens resulting
from the War of 1812 and representing
South Carolina at the 1850 secession con-
ference at Nashville, Cheves was “done
with politicks and public life.”
Clyde Haulman is professor emeritus of
Economics at the College of William and
Mary. He studies the early national econ-
omy and the development of American
economic thought, and he is the author
of Virginia and the Panic of 1819 (2008,
Chatto and Pickering).
Note
1.
Dividends paid prior to Cheves assuming
control of the Bank and halting dividend
payments were: July 1817, 2 6/10%; January
1818, 4%; July 1818, 3½%; and January 1819,
2½%.
Sources
Catterall, Ralph C. H. The Second Bank of the
United States. Chicago, IL: University of
Chicago Press. 1903.
Gouge, William M. A Short History of Paper
Money and Banking in the United States.
Philadelphia, PA. 1833.
Hammond, Bray. Banks and Politics in Amer-
ica from the Revolution to the Civil War.
Princeton, NJ: Princeton University Press.
1957.
Haulman, Clyde A. Virginia and the Panic of
1819. London: Pickering and Chatto. 2008.
Huff, Archie Vernon, Jr. Langdon Cheves of
South Carolina. Columbia, SC: University of
South Carolina Press. 1977.
Knodell, Jane Ellen. The Second Bank of the
United States: “Central” Banker in an Era of
Nation Building. London: Routledge. 2016.
Perkins, Edwin J. “Langdon Cheves and the
Panic of 1819: A Reassessment.” Journal of
Economic History, 44:2. pp. 455–61.
Smith, Walter B. Economic Aspects of the Sec-
ond Bank of the United States. Cambridge,
MA: Harvard University Press. 1953.
Temin, Peter. The Jacksonian Economy. New
York: Norton. 1969.
www.MoAF.org | Winter 2018 | FINANCIAL HISTORY 39