america’s first major financial crisis -- 1/25/21
Today's selection -- from The Golden Voyage: The Life and Times of William Bingham, 1752-1804 by Robert C. Alberts. The United States’ first financial crisis after its new beginning in 1789 under its Constitution had been a short-lived affair in 1792. Its first major financial crisis came in 1796 following massive land speculation by wealthy Americans all across the new country. Robert Morris, who had almost single-handedly financed America’s War of Independence, was perhaps the most extravagant speculator -- and it brought him to debtors’ prison and ruin. He brought down with him many of the most prominent names in America:
“The 'Duer Panic' of 1792 had been short and limited in its effects; the panic of 1796-97 was severe, widespread and prolonged. In a six-week period, 150 companies failed and sixty-four merchants and speculators, some of them distinguished men, were taken off to debtors' prison. James Wilson [viewed by many as the father of the Constitution] had been shored up by a £5013 loan from [the wealthy trader William] Bingham, but he sank deeper and deeper into debt. In 1797, while traveling on his rounds as a Supreme Court justice, easing his mental torment by drinking whiskey and reading novels, he was thrown into a New Jersey prison. He died the following year owing enormous sums. Blair McClenachan was jailed for debt after (according to Dr. Rush) selling his estate to his children to defraud his creditors. Thomas Fitzsimmons was ruined, partly because of a loan of $160,000 he had made to Robert Morris.
"The collapse of Morris and his partners, James Greenleaf and John Nicholson, sent a shudder through the economy. When Morris fell, he carried dozens of others down with him, and the normal sympathy felt for a patriot who had rendered great service to his country was modified by the knowledge that he had dragged some of the best families into poverty and misery. Alexander Hamilton, John Jay, Bishop White (Mrs. Morris' brother), and Thomas Willing [president of America’s first bank and also of the federally chartered Bank of the United States] lost money through Morris. Albert Gallatin [later U.S. Treasury Secretary], who had sold his western lands to Morris, lost a much-needed $3000. George Harrison, who had married into the Francis-Willing families, lost a fortune, and as a result defaulted on a $40,000 debt he owed to William Bingham.
"Friends had tried to dissuade Morris from reckless speculation and compulsive extravagance at a time when his drafts were being returned for lack of funds. Washington warned him against overextending himself on land purchases. Thomas Willing served for a time on the board of Morris' North American Land Company, which owned some six million acres in six states; but he withdrew when the Bank of the United States threatened to sue if Morris did not make good 'the paper lying in the bank.' Morris paid a large personal debt to Willing by transferring a fraudulent claim against a third party. Willing did not prosecute his old friend and former partner.
"'My property is so extensive,' Morris declared, 'that it cannot fail to carry me through, and all I want is a little time. ... I expect before long to come forth in triumph.' But immigration to the United States had virtually stopped; the capital funds of Europe were being used to support or to fight the French armies that were overrunning the Continent; money in Philadelphia cost 2 per cent interest a month -- when it could be found; and land sales were at a standstill. …
"His lands were being sold for taxes. The row of brick houses he had started in Washington City was being plundered or occupied by squatters. His debts were estimated at something between $10 million and $30 million; his notes were selling for 15 per cent of their face value, purely as speculation. 'There is no bearing with things,' he cried out. 'I believe I shall go mad. Every day brings forward scenes and troubles almost unsupportable.' He locked himself in his house on the Schuylkill, with constables and bailiffs camping around bonfires on his lawn. Finally he was apprehended and taken to a whitewashed cell in the Walnut Street prison. He moved in his own furniture -- a writing desk, a copying press, a bedstead and bedding, a settee, chairs and mirrors. He worked over his accounts and letter books in a vain attempt to bring some order into his affairs. His wife Molly lived in a small room across the street from the jail, visited him daily, and paid the charges levied against imprisoned debtors: cell rent and meals. General Washington dined with Morris in his cell when he visited Philadelphia. He and Mrs. Washington invited Mrs. Morris and her daughter to visit Mount Vernon and stay as long as they wished."