Financial History 145 Spring 2023 - Page 27

Millions of Spanish dollars ( pesos )
Imports of Silver to China , by Country , 1719 – 1833
Sources : Louis Dermigny , La Chine Et L ’ Occident : Le Commerce À Canton Au XVIIIe Siècle , 1719 – 1833 ( Paris : S . E . V . P . E . N , 1964 ), 2:735 ; this chart follows the form of “ Figure 1 : Country Share of China ’ s Silver imports , 1719-1833 ( in pesos ),” in Alejandra Irigoin , “ The End of a Silver Era : The Consequences of the Breakdown of the Spanish Peso Standard in China and the United States , 1780s – 1850s ,” Journal of World History 20 , no . 2 ( June 1 , 2009 ): 211 .
were decided at Waterloo , American merchants — and the US government — had profited from their status as neutral shippers . The end of the conflict meant that these old strategies no longer worked . For American merchants , that meant shifting their activities to support British imperialism in Asia , rather than profitting from filling its gaps . Politicians in Washington , meanwhile , began treating the once celebrated “ China trade ” as a threat to national security .
This shift was part of a broader reorientation in American politics . After their second war with Great Britain , US leaders came to see relying on trade as an engine for prosperity as more dangerous than useful . From the perspective of the National Republicans ruling Washington in the 1810s and 1820s , only active government intervention could strengthen the nation ’ s domestic economy sufficiently to withstand — or avoid — the next war . The “ American System ” that Henry Clay and others championed aimed to create the infrastructure needed to make international trade unnecessary .
One side effect of this shift was that American China traders came under scrutiny for their unique business practices . Annually they shipped millions of dollars ’ worth of silver to China . This silver “ drain ” attracted a great deal of interest from publicists and policymakers concerned that it was ruining the nation ’ s currency , and thereby threatening the republic ’ s stability .
American merchants had shipped significant amounts of silver specie to Asia for decades . Spanish-minted dollars were the only always-welcome commodity in Guangzhou ’ s markets ; and because of the United States ’ considerable involvement in Latin American trade , US-based merchants usually had access to a ready supply . But Spanish dollars also held a special place in the American economy . They were legal tender , a common medium for commercial transactions and functioned as a reserve currency upon which banks issued paper bank notes — and thus important to the stability of the money supply .
Silver flows to Asia eventually slowed and then reversed in the 1830s . But in the medium term , the steepest parts of the ramp-up of American silver shipments coincided not only with the new policy regime , but also a major economic downturn , the Panic of 1819 . Many contemporaries connected the unprecedented outflow of silver to the instability plaguing the country . The arch-protectionist Niles ’ Weekly Register even argued that traders to China who exported specie were “ destructive merchants … whose business ought to be annihilated ” for the trouble they caused .
The infamy of specie exportation proved a stubborn stain , one that dogged the
China trade for decades . But it also became a crucial component of Bank of the United States President Nicholas Biddle ’ s plan to domesticate global flows of capital for Americans ’ benefit — and his bank ’ s profit .
Biddle was elected to the presidency of the Second Bank of the United States ( BUS ) in 1822 . The bank was a controversial institution : the country ’ s largest corporation , it alone had the ability to conduct operations in all US states , giving it extraordinary power and , potentially , responsibility . By 1825 , Biddle had noticed that each spring China merchants made large annual calls on northeastern banks for silver specie to outfit their adventures . These calls intensified the already significant challenge of maintaining liquidity across the bank ’ s extensive branch network — and threatened the solvency of smaller banks .
To smooth out these disruptions , in the spring of 1825 , Biddle ’ s bank began selling what he called “ E India Bills .” These were bills of exchange issued by the BUS to American merchants that drew on the bank ’ s accounts with European banks . The BUS ’ s East India bills were indistinguishable from private bills already used in the China trade — like what William Gray used — but benefitted from having the big bank ’ s reputation behind them .
Biddle intended his bills to do more than help merchants move money . He wanted to make the bank an intermediary in global finance , capable of absorbing the “ sudden and violent fluctuations ” of international trade . East India bills provided a means to head off the financial panics that could result when the spread in the price of specie in domestic markets diverged sufficiently from foreign markets to induce silver exports .
Biddle had a chance to test this method in 1825 , when a summer slump in cotton prices caused a wave of failures and led the Bank of England to contract its credit — difficulties that sharply increased specie calls on American banks , including the BUS . To head off disaster , Biddle worked the Bank as a “ balance-wheel ,” selling coin and issuing notes and bills to provide liquidity to other institutions , and counter prevailing market forces . One of his supporters highlighted the success , crowing in a newspaper how Biddle ’ s “ East-Indies ” bills allowed the US to “ escape from the misfortunes which have overwhelmed the British Empire ” in 1825 . Ironically , while Biddle intended his bill experiments to protect Americans from
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