america was "the most stinking country in the world" -- 01/09/17

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Today's selection -- from America's First Great Depression by Alasdair Roberts. In the 1830s, corporations and states went on a borrowing binge to finance the construction of new railroads and canals, the "internal improvements" endorsed by the emerging Whig Party (including a young Abraham Lincoln). However, far more railroads and canals were built than were needed, generally financed using bonds sold to British and other European investors. By the late 1830s, these bonds were starting to go into default and a panic had begun. As European losses mounted, one member of the Rothschild banking family called America "the most blasted & the most stinking country in the world":

"In 1839, Daniel Webster had assured British investors that no state would risk the 'penalty of honor and disgrace' by defaulting on their bonds. Now nine governments, responsible for two-thirds of all the American government debt in private hands, were routinely missing interest payments, attempting to sidestep credi­tors, or flatly repudiating their obligations. Across the Atlantic, investors were outraged.

Yankee Doodle borrows cash,
Yankee Doodle spends it,
And then he snaps his fingers at
The jolly flat who lends it.
Ask him when he means to pay,
He shews no hesitation,
But says he'll take the shortest way,
And that's repudiation!
(Literary Gazette, London, January 1845)

"As American state governments tumbled, the mood in the world's financial center soured. 'I was in England when the intelligence was received, and the shock was felt, of your failing to pay the dividends on your bonds,' James Hamilton told a crowd of Mississippians in 1843. Hamilton, a former governor of South Carolina, had been in London as an agent trying to sell bonds for the new republic of Texas. No one would buy them. The capital was seized was panic. Hamilton was accosted by an aged British pensioner who had put his savings into Mississippi bonds. 'I assured this veteran, with a gush of sensibility equal to his, that every farthing of the Mississippi bonds, interest and principal, would be paid, as sure as there is a God in Heaven.'

Erie Canal Stock Certificate

'Great bitterness of feeling is very naturally felt' by the mass of investors in American bonds, the American minister to London, Edward Everett, reported. 'Many have by their investments lost all the earning of active life and the fund on which they relied for their support in old age. That this feeling should find vent in the popular press is natural.' The Times of London reported that '[a]n American gentleman of the most unblemished character was refused admission to one of the largest clubs in London on the sole grounds that he belonged to a republic that did not fulfill its engagements. . . . It is not too much to expect that the example will be followed in other establishments. No distinction, as we understand, has been made as to the State to which an individual may belong, but the whole United States are looked upon as equally tarnished.'

"That defaulting states would be barred from financial markets was to be expected. But non-defaulting states -- and the U.S. government itself -- were alarmed by the prospect that they, too, would be denied loans. Shortly after the first defaults, President John Tyler delivered his first annual address to Congress, urging overseas investors to recognize that each state was autonomous, and 'should in no degree affect the credit of the rest .... [T]he foreign capitalist will have no just cause to experience alarm as to all other State stocks because anyone or more of the States may neglect to provide with punctuality the means of redeeming their engagements.'

"The address, quickly reproduced in London, had no effect. Joshua Bates, head of American trade at Barings Bank in London, confided to the bank's agent in Boston in December 1841 that British investors 'in their anguish are crying out against all American stocks, and we shall never be able to sell any more. ... I have come to the conclusion (which had best be concealed perhaps) not to sell any more American stocks. . . . I believe it will only be wasting our time to have anything to do with them.' Barings' principal competitor, the House of Rothschild, was even cooler on American securities. Anthony de Rothschild, a partner in the London branch of the family's bank, urged his brothers to sell all U.S. investments. 'Let us get rid of that blasted country -- as much as we profitably can. It is the most blasted & the most stinking country in the world -- & we must get rid of it.' "