Driving A Soft Bargain

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It is surely fortunate that only very seldom these days does the fate of a great nation lie in the hands of a single individual. Winston Churchill, in his history of the First World War, described Admiral Jellicoe, who had commanded the British Grand Fleet in the Battle of Jutland, as “the only man on either side who could lose the war in an afternoon.” Two and a half decades later, of course, the fate of Britain, and thus the world, lay in the hands of Churchill himself.

The closest the United States has come to such a situation, at least in this century, was probably in the “hundred days” of the New Deal, when the country and Congress alike looked to Franklin Roosevelt to prevent the complete collapse of the American economy. During that period Roosevelt was, in effect, a dictator, although let me hasten to add that I mean the word only in its best sense, that of the office of the Roman Republic once filled by Cincinnatus. Earlier, of course, Abraham Lincoln certainly held the fate of this nation in his hands as well.

But Jellicoe, Churchill, Roosevelt, and Lincoln are exactly the sort of people one might expect to hold such power and responsibility, and they will live forever in history as a result. Forty-eight years before Lincoln was sworn in as President, however, another man found himself, briefly, with America’s destiny at his disposal. Yet today he is forgotten except in his hometown of Philadelphia, which he richly endowed.

His name was Stephen Girard, and he is the subject of a recent biography by George Wilson (Combined Books, 1995). Girard was a businessman who never held public office. Instead he devoted his life to making money. That, it turns out, was exactly why his country needed him desperately in March 1813.

Girard was born in Châtrons (now part of Bordeaux), France, on May 20, 1750. His right eye was deformed from birth. Still worse, it was too large for its socket, and its pupil was fixed in the outer corner, giving him a fish-eye appearance. As a child he was, naturally, tormented by his contemporaries about his eye and he would be shy and sensitive about his appearance all his life. Although at the turn of the nineteenth century men in his position had their portraits painted as a matter of course, even frequently, Girard always flatly refused to sit for one, and there are no likenesses of him taken from life. Even those drawn after his death usually show his face in three-quarter profile, obscuring his right eye. (Girard’s private life was also less than happy. He had no children, and his wife, who went insane, lived in an institution for years, leaving him unable to remarry.)

Bordeaux was, and is, one of the great ports of France, and the Girard family had earned its living from the sea for many generations. Girard’s father owned several small to medium-size ships and ran his business out of an office on the first floor of the Girard house, not far from the waterfront. Thus young Stephen grew up not only with the smell of the sea in his nostrils but with an ongoing tutorial on the shipping business in his ears.

He first went to sea in 1764, and by the time he was twenty-three he had his license as a captain in the French merchant marine. He signed on as first mate in a ship called the Julie , in which he had been assigned some free cargo space to supplement his pay. He sailed for Port-au-Prince in what is now Haiti, and he would never see France again.

Girard lost money on his first cargo, but he was nothing if not a fast learner and was soon a prosperous ship owner living in Philadelphia. After American independence his fleet enlarged quickly, and his captains sailed all over the world, buying cheap here, selling dear there. By the first decade of the nineteenth century, Girard was the richest man in the United States.

By 1811 the United States was drifting toward war. The Royal Navy had been more than a little high-handed during the previous decade in boarding American ships and pressing any sailors deemed to be British. All attempts by Presidents Jefferson and Madison to deal with this problem short of war, notably the Embargo Act, had failed, and the country’s temper, especially in the West, was fraying badly. The election of 1810-11 put the so-called War Hawks in charge of Congress, and the young Henry Clay was elected to be Speaker of the House. The War Hawks wanted war with Great Britain, but their purpose was not to secure American rights on the high seas (indeed they cut naval expenditures) but, being mostly Westerners, to seize lands in the West from Spain and take Canada from Britain.

While the War Hawks were in favor of war, they also hated the Bank of the United States. More than a hundred state banks had been opened in the years since the Bank of the United States had been established in 1791 with a twenty-year charter to safeguard the nation’s money supply and to act as the government’s fiscal agent. These banks now heavily influenced state politics, and many of them chafed under the discipline of the federally chartered bank and also resented its competition. The state banks wanted to take over the function of depositories for government funds, which would allow them to expand their bank note issues.

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.