Driving A Soft Bargain


Although President Madison had originally opposed the creation of the Bank of the United States, he now realized its utility and authorized the Secretary of the Treasury, Albert Gallatin, to seek a renewed charter for it. On January 24, 1811, the House rejected by a single vote a preliminary motion, and the fight moved to the Senate. On February 20 the Senate tied 17-17 on another preliminary matter regarding the bank’s charter, and the Vice President, George Clinton, broke the tie by voting against it. The Bank of the United States was dead.

In ordinary times this would have been just one more example of the shortsighted politics that is so often the price of democracy. But many of the men who voted to kill the bank were also those who advocated war—the most expensive of public policies—with one of the strongest military powers on earth. Given the fact that the federal bank was the government’s principal mechanism for collecting internal revenue and its only one for raising loans, the defeat of the new charter was perhaps the most feckless act in the history of the United States Congress.

But the War Hawks’ folly was Stephen Girard’s opportunity. He quickly bought the physical assets of the bank, including its magnificent headquarters, which still stands on Third Street in Philadelphia. At the time, there were probably not a dozen men in the United States who could have come up with $100,000 in immediately negotiable assets, so Girard startled the entire country when he opened his bank with no less than $1.2 million in capital, including $71,000 in cold, hard cash.

The War Hawks, still in control of Congress, voted for war on June 4, 1812. Having done so, they promptly increased the army’s pay and provided very generous bonuses for enlistments. But Congress then adjourned without raising taxes to pay for it all.

The results were, of course, disastrous. By the beginning of 1813, while the United States had enjoyed several notable victories in single-ship naval engagements, it had known only defeat on land.

Worse still, the government’s revenues were collapsing at the same time that its expenses were mounting swiftly. By February 1813 the Treasury was nearly empty. On March 5 Gallatin wrote President Madison: “We have hardly money enough to last til the end of the month.” The British, fully aware of Washington’s fiscal plight, had recently spurned a Russian offer to mediate. Britain expected to win the war with silver bullets.

Congress authorized Gallatin to raise $16 million, the largest sum by far that the government had tried to borrow up to that point. Gallatin designed the loan to attract small investors, who could purchase loan certificates in denominations as small as one hundred dollars and pay for them over eight months. But the public wasn’t buying, and unless the entire subscription was taken up by the end of the month, the loan wouldn’t go through. As Gallatin had predicted, by March 31 the government of the United States, at war with a superpower, was dead, flat broke.

Gallatin had allowed himself five days’ grace if the subscription failed, in order to find someone to take what was left. That could only be Stephen Girard. Gallatin told Girard that subscriptions had totaled $5,838,200, hardly more than a third of the total. John Jacob Astor, as head of a syndicate of wealthy New Yorkers, had agreed to subscribe to $2,056,000, provided that Girard subscribe to the rest, a staggering $8,105,800—more than the government had spent in an entire calendar year as recently as 1811.

Girard, who had numerous serious disputes with the government regarding his trading activities, could have driven the hardest of bargains. Instead he simply asked that the Treasury deposit the proceeds in his bank and that he receive a commission of one-quarter of one percent to cover his costs in trying to get others to participate in the loan, for he intended to sell as much of the government’s paper as possible.

He was confident he could succeed in that, for he knew that his credit was much better than that of the federal government. And he was correct. Within ten days he was able to sell $4,672,800 of the loan to the public, and his final personal subscription was $2,383,000, after other private donations were made. It was still a vast sum in those days but one that he could easily handle.

With money once more in hand, the United States was able to fire a few silver bullets of its own, and the military situation began to improve. By the end of the year, Britain was anxious to settle this distracting little war on the periphery of its global concerns. Thus, thanks to Stephen Girard, the United States was able to extricate itself with honor, if not victory, from a war it should never have begun in the first place.