Financial History Issue 121 (Spring 2017) | Page 13

STEPHEN GIRARD Early American Entrepreneur, Financier, Banker and Businessman By Clyde A. Haulman In the early phases of the War of 1812, prospects for the new nation were not good. Despite several exceptional Ameri- can naval victories, the British were strik- ing at will in the Old Northwest and tight- ening their naval blockade on the East Coast. Napoleon’s disastrous march into Russia meant that additional British mili- tary assets were likely to be available for the American war. After a decade of fiscal frugality with little expenditure on the military and defense, the US government succeeded in getting a $10 million loan in March of 1812 — just as war loomed with Britain. But it was clear that with no new domestic taxes and, in spite of increased duties, no significant revenue stream from customs as the blockade closed down trade, the war effort was in trouble. In March 1813, Secretary of the Treasury Albert Gallatin, who had presented Con- gress with information about the state of the nation’s finances earlier in December, requested an additional loan of $16 mil- lion. Given the risks lenders perceived, when the books closed subscriptions fell well short of the total. With the federal government facing a fiscal crisis, Gallatin turned to a small group of leading busi- nessmen — what economic historian Don- ald R. Adams, Jr. called “undoubtedly the first real underwriters’ syndicate for the purpose of marketing government stock.” Meeting in Philadelphia on April 5 in response to the request for proposals to cover any remaining portion of the loan, Stephen Girard, the Philadelphia merchant and banker; John Jacob Astor, a wealthy New Yorker; and David Parish, son of a Hamburg banker who previously had acted as an agent for Girard, indicated they would divide the unsubscribed $10 mil- lion among themselves. Girard and Parish together took $8 million and Astor took $2 million. The terms of their offer were slightly more advantageous to the govern- ment than those of the initial proposal, and once their offer became known, more than 100 investors agreed to take parts of the Girard-Parish commitment. When it all shook out, Girard had loaned the gov- ernment some $2.5 million, including his coverage of most of Parish’s portion. Three circumstances combined to enable Girard to play such a significant role in saving the Treasury loan of 1813 and, thereby, securing the war effort and federal government operations. First was his successful business enterprises that had placed him among the wealthiest of American entrepreneurs in the first decade of the 19th century. Second was the closing of the Bank of the United States. Third was a loophole in Pennsylva- nia banking legislation regarding private banks. Perceptively seeing opportunities and new directions for his business enter- prises, Girard acted decisively to enhance his own position and wealth, as well as aid his adopted nation. Arriving in Philadelphia in June 1776, Girard, having achieved success in coastal trading, quickly began the mercantile operations that would grow dramati- cally over the next 30 years. Capitaliz- ing on the opportunities provided by the French entry into the Revolution and his own industry and frugality, Girard prospered and spread his networks more broadly. Aided by his expanding fleet of vessels, particularly the famous philoso- pher ships — the Helvetius, Montesquieu, Rousseau and Voltaire — Girard extended his trading empire to China and India, South America and the Caribbean, Russia and, most profitably, Western Europe. By the middle of the first decade of the 19th century, Girard grew increas- ingly concerned about the viability of the American neutrality that enabled him and other merchants to make enormous profits in the European carrying trade. With the imposition of the Embargo Act at the end of 1807, Girard began taking steps to secure his European assets then spread among a number of trading centers across the con- tinent. Consolidating his wealth in London using his British correspondent Baring Brothers and taking advantage of favorable exchange rates, over the next four years Girard succeeded in securing his capital and returning it to the United States. In 1807, Girard sent a trusted employee to begin consolidating his European assets. In 1810, he authorized David Par- ish as his agent and soon sent two other Philadelphians to assist. Moving assets to London, while at times difficult and not without risk, proceeded throughout the period 1808–1812. However, having sub- stantial balances in London, even with a firm that Girard trusted as much as Baring Brothers, faced significant uncertainties as the continental war ebbed and flowed and economic and political relations between the United States and Great Britain con- tinued to deteriorate. Thus, Girard sought to move his wealth to the United States by purchasing goods for import to the United States, as well as by financial transfers in the form of purchases of US government  |  Spring 2017  |  FINANCIAL HISTORY  11