Abraham Lincoln, Banking and the Panic of 1837 in Illinois

Abraham Lincoln, Banking and
the Panic of 1837 in Illinois

large_times_panic_1837
Edward Williams Clay
Library of Congress Prints and Photographs Division:
Call Number: PC/US – 1837.C619, no. 11
 
The Panic of 1837

Illinois, Land and Banks

Lincoln in 1837

1838-1840

Lincoln’s Sub-Treasury Speech

1840-1842

 
The Panic of 1837 was one of the worst financial recessions in the history of the United States. Its roots lay in the administration of President Andrew Jackson from 1829 to 1837. Its effects were exacerbated under his successor, Martin Van Buren, from 1837 to 1841. The recession itself did not really end until 1843 during the administration of John Tyler, who succeeded to the presidency when in 1841 William Henry Harrison died shortly after his inauguration.

President Jackson did several things that helped bring on the Panic of 1837. First, Jackson systematically and effectively destroyed the Second Bank of the United States. In 1832, President Jackson vetoed the bank’s early recharter which had been pushed by the bank’s supporters. Then, in 1833, he systematically removed the government’s deposits from the bank and placed them in “pet banks” of the administration. By the beginning of 1835, its charter having expired, the Second Bank of the United States was dead. With its demise also died the bank’s ability to mitigate credit crunches across the country. The federal government’s “pet banks” went on a lending spree. The actions taken by the Jackson administration had fueled land speculation – which the administration then crushed in 1836 when Jackson issued the Specie Circular and shifted the federal government’s surplus back to states in a way that severely overburdened the banking system. Particularly hurt were New York banks, which were forced to suspend payments in specie in May 1837. Jackson certainly had his own philosophical framework for these actions, but as historian Roger G. Kennedy noted, the nation’s seventh president “was moved throughout his career as often by wrath as by deliberation…”1 His vendetta against the Second Bank of the United States had led to economic catastrophe for states like Illinois, where Jackson had long been popular.

In the 1830s, President Jackson had been in part reacting to his own demons – especially Nicholas Biddle, president of the Second Bank of the United States. Jackson biographer H. W. Brands wrote that “Biddle never rested, or so it seemed to Jackson. The financial troubles that followed Jackson’s decision of the summer of 1836 to require specie payments for federal land only worsened, producing the most severe contraction in decades. Fingers of blame pointed to Jackson for bursting the bubble, to the speculators for inflating it in the first place, to the banking system for extending excessive credit on the bubble’s expansion and insufficient credit on the collapse. Jackson was sure Biddle was behind the new panic. The Bank of the United States, upon the expiration of its federal charter, had been reincorporated in Pennsylvania, and Biddle reinstalled as its president. He had as much incentive as ever to throttle the economy, in order to restore the primacy of banks, and nearly as much power as ever to do so. Van Buren must continue the struggle Jackson had started.” 2

While the Second Bank of the United States had been crushed, less reliable banks had popped up everywhere. Historian Jenny B. Wahl wrote that “the number of commercial banks exploded, from 220 in 1830 to 506 in 1834 and 729 in 1837. Chartering banks, taxing banks, and investing in banks were ways for states to build in financial and budgetary flexibility when they could not issue their own money.” 3 Historian Daniel Walker Howe wrote of the pet bank scheme: “Jackson had always regarded it an ‘experiment.’ Although Treasury Secretary Woodbury had dutifully regulated the pets, an administration committed as a general principle against federal regulation and planning did not find the task congenial. When the pets along with other banks suspended specie payment for a year starting in May 1837, hard-money Democrats complained that the public trust had been betrayed. It was time to rethink the government’s relationship with banking.

The Panic of 1837

President Jackson was safely out of office and home in Tennessee when the Panic of 1837 hit that spring. The monetary contraction took place under Jackson’s close collaborator as vice president, New York’s Martin Van Buren. Van Buren’s ascension to the presidency was overshadowed by the departure of his predecessor. Historian Ted Widmer wrote: “Whenever a strong president prepares to leave the scene, there is always a price to pay, and it was hardly surprising that Van Buren, who had aroused wrath throughout his career, would be expected to pay it.” 4 So there was no reservoir of political good will for the Little Magician when a banking and liquidity crisis paralyzed the nation’s economy and brought on six years of economic contraction and stagnation. Historian Arthur M. Schlesinger, Jr., wrote that after New York banks suspended payments in specie, banks across the country soon followed suit: “The business community rushed to defend it as a natural and necessary step, some of its hangers-on even extolling it as an act of virtue.”5 The Panic of 1837 drained the capital needed by banks in New York and New Orleans to finance the nation’s commerce. Economic historian Peter L. Rousseau wrote: “In the five years that followed the nation’s first general suspension of specie payments by banks, failure and loan losses reduced the book assets of the state chartered banks by 45 percent, and 194 of the 729 banks with charters in 1837 were forced to close their doors. Prices of banking, railroad and industrial securities in the early stock markets plummeted.”6

Historian John Steele Gordon wrote: “With the national debt paid off and the government running large surpluses (government revenues increased by 150 percent between 1834 and 1836, in part due to the great increased land sales), the question of what to do with the money was increasingly urgent. Jackson convinced Congress to give it to the state governments, beginning January 1, 1837. Faced with having much of their government deposits withdrawn, the pet banks had begun to call in loans.” 7 Historian Jenny B. Wahl wrote: “Starting in September 1836, specie flooded away from eastern financial centers as the federal surplus traveled to the state depository banks and as land purchasers in the West clamored for hard money.”8

Illinois historian Theodore Pease wrote that “by 1836, the issues of state bank notes, no longer controlled by the United States Bank and encouraged by the deposits of government funds, were reaching startling figures – more startling still was their apparent tendency not to find a place in the commercial business of the country, but instead to be used for purchases of the public lands. Credit by means of bank notes had been expanded far beyond the needs of the legitimate transactions of business, simply because these fruits of overexpansion could be used to procure public lands. To save the public lands of the nation from passing into the hands of speculators Jackson issued the much criticized specie circular, forbidding the reception of anything but specie and notes of specie paying banks, immediately in the case of large purchases and in the near future in the case of small ones.” 9 Jackson’s actions exposed the vulnerabilities of the national economy without a national bank to moderate credit crunches. Banks were dependent on the availability of specie to redeem their obligations. But there was not enough specie held by banks to handle their obligations.

Without the influx of money from the sale of public lands – which the Specie Circular eviscerated – the federal government’s income was slashed to the bone. Jackson’s policies were not alone to blame for the problems, but they had inadvertently exacerbated problems that they tried to correct. Economic historian Bray Hammond wrote that Jacksonians “did not seek reform or correction [of the bank]. They sought to end the bank’s life, impelled by the entrepreneur’s desire for abundant credit, the sectional politician’s jealousy of federal powers, the self-made man’s envy of those whom he had not yet supplanted, and New York’s impatience with Philadelphia’s remnant of financial primacy.” 10 Historian William W. Freehling wrote that the “Panic of 1837, the nation’s worst yet, provided the country’s headline story immediately after Jackson departed the White House. Like many subsequent presidents, Jackson caught too much of the blame; forces beyond his control had done more to generate the boom and bust. But his pet bank scheme had contributed to the boom; his Specie Circular had contributed to the bust; and, as he had predicted, the paper money disaster particularly devastated the poor. His supposedly egalitarian Bank War had heaped more inequality on his folk.”11

This was the political environment in which Abraham Lincoln had first unsuccessfully sought election to Illinois State Legislature in 1832 (when the veto controversy was brewing), first been elected to the State Legislature in 1834 (when the Bank War was at its height) and had been reelected in 1836 (when land speculation and pressure for spectacular state internal improvements were at their height). An admirer of Tennessee’s Jackson while a teenager in Indiana, Lincoln had become as a young a supporter of Kentucky’s Henry Clay, known for his “American System” of a national bank, internal improvements and a strong tariff. In early 1837, Lincoln supported a program for a vast internal improvements network in Illinois – just before the Panic of 1837 hit the state. Paul Studenski and Herman Edward Krooss argued: “The specie circular immediately stopped further credit expansion and brought the land boom to an end, precipitating a panic. However, Jackson’s action was not fundamental. The great overinvestment in state-financed capital projects and the overspeculation in land during the period of prosperity were much more responsible for the eventual collapse. Over-expansion was fed by capital imports from abroad, by vast expansion of bank credit, and by the government’s fiscal and banking policies. The rapid repayment of the national debt provided funds which the states borrowed….The land policy encouraged speculation. The failure to recharter the Bank removed the only control over the credit structure. While deposited in the state banks, the surplus acted as a source for credit inflation, and when distributed among the states, it added to the investment boom.”12 Then, the rickety financial structure that Jackson had created fell apart.

In March 1837 when Van Buren took over the presidency from Jackson, he had inherited a fiscal system that had been effectively broken by Jackson’s emotionally-charged economic policies. Jackson had dutifully, proudly, and very briefly had paid down the national debt in early 1835. Historian Harry L. Watson observed that Jackson saw “debt as a threat to independence, for an indebted individual or nation would always be ruled by its creditors.” 13 Just months after Van Buren took office, however, the federal government was running a deficit and with the demise of the Second Bank of the United States, it had no mechanism to funds its operations. The economic contraction created strong political repercussions that opened the way for Whig Party to emerge as a strong alternative to the Democrats, even in a Democratic state like Illinois. Arthur Schlesinger noted that “state legislatures enacted laws exempting banks from the penalties of suspension just about as the business community specified. The time seemed ripe for an all-out attack on the hard-money system…. Van Buren and [Thomas Hart] Benton were sent hundreds of parody banknotes, inscribed ‘This is what you have brought the country to’ or ‘The gold humbug exploded’ or ‘Behold the effects of tampering with the currency’ or sentiments less printable.”14

Incoming President Van Buren had an opportunity to reverse the Specie Circular, but he refused to sign the necessary legislation to reverse Jackson’s work. Van Buren had inherited Jackson’s policies, but he lacked Jackson’s political capital to enforce them or sell them or strong underlying economic forces to sustain them. Historian Sean Wilentz wrote: “Commodity prices had skyrocketed over the winter of 1836-37, an inflationary boom fueled by foreign investment and worsened by two successive years of wheat crop failures. In Manhattan, a public meeting called by the Loco Focos [a faction of the Democratic Party] in February to protest the runaway prices turned into a riot, as hungry workers plundered private storerooms filled with sacks of hoarded flour. While farmers failed to pay their bank debts, placing new pressures on overextended bankers, the decline of agricultural exports abroad threw the balance of trade against he United States. The imbalance coupled with falling cotton prices, led British banks and creditors to demand repayment in hard currency from American borrowers.” 15 The impact was soon felt across the country. Arthur Schlesinger wrote: “The crash brought suffering and distress. Price of essential foods hot out of the reach of the poor….In the cities during the winter of 1836-1837 mutterings of dissatisfaction turned into growls.”16

The restriction of credit and currency paralyzed the economy. Gordon wrote: “As highly illiquid borrowers defaulted on their loans, a wave of bank failures swept the West and began to roll eastward. Bankruptcies in other sectors of the economy followed as liquidity vanished. The Bank of England, trying to prevent an outflow of gold from that country, raised interest rates, and British investment in American securities declined as did British cotton purchases. Wall Street plunged. On January 2, 1837, the New York Herald reported that interest rates had been 7 percent a year were now 2 or even 3 percent a month.”17

As quickly as the economy had overheated in America and Europe, it contracted – effectively halting land sales and speculation while strangling public works projects that state legislatures – such as Illinois’s – had authorized in fits of ambition and euphoria. Historian Ted Widmer observed: “No one could exactly arrest this commercial zeal, but the climate of speculation raised hackles inside a Democratic party that still clung to a Jeffersonian creed – a creed that was increasingly irrelevant to an economy that was obviously Hamiltonian, and then some.” 18 Jackson had made a dangerous situation worse and Van Buren proved unable to make it better. Historian Jenny Wahl wrote: “In early May 1837, New York banks suspended the redemption of banknotes for gold. Nearly every other bank in the nation quickly followed.” 19 Once again, Americans questioned their reliance on banks and their power over the economy. The impact spread from banking and commercial centers to the Midwest and South. Van Buren biographer Edward M. Shepard wrote: “The prostration in the newer cotton states was peculiarly complete. Their staple was now down to ten cents a pound; within a year it had been worth twenty. All other staples fell enormously in price.” 20 Historian Wyman Boardman wrote: “Many states ceased paying interest on their debts and four repudiated in whole or part the debts themselves….Crop failures in 1835 and 1837 added to the trouble, leaving farmers unable to meet financial obligations….Real-estate values fell, as did stock and commodity prices. Unemployment was widespread and in New York a mob invaded flour warehouses and carted away as much as possible.” 21

During the summer of 1837, Van Buren struggled to come up with a program to deal with the crisis. Historian Ted Widmer wrote: “When Congress reassembled, Van Buren was ready. As usual, he had a little something for everybody. His message, delivered on September 5, was an impressive document, clear and concise. For the hard-money people he offered to postpone the final distribution of the surplus and proposed that an independent Treasury be created for federal deposits – separate from the banks. This was a momentous step, one that had been discussed in the most anti-bank fringes of the Democracy, but never put into motion.” 22 With Jackson’s blessing, Van Buren summoned a special session of Congress in September 1837 and asked for legislation to authorize removing the taxpayers’ money from all banks, placing it in an Independent Treasury. (The term was used to signify not only independence from banks but also independence from British capital, which had invested heavily in the old BUS.) Each major city would have a Sub-Treasury for local convenience. In the meantime, Van Buren removed the government’s deposit from the pet banks by executive action on the grounds that they did not pay specie as required by law.” 23 Congress passed everything but the independent Treasury scheme, which became a centerpiece of national politics for the next four years.

Supporters of Henry Clay and the emerging Whig Party – such as Abraham Lincoln – opposed the Sub-Treasury proposal – but so did many Democrats and the legislation did not move through Congress. Historian John McFaul wrote that “both stoutly defended the credit system against administration policy. The Whigs still championed a national bank for the nation’s economic ills, but they also believed the most immediate task was to prevent the passage of an independent treasury bill.” 24 The plan was certainly vulnerable on economic grounds,” wrote historian Arthur M. Schlesinger, Jr.. “It enforced a decentralization of the banking system which in the end would prove so cumbersome that the policy was reversed with the establishment of Federal Reserve System.” But Schlesinger argued that the Independent Treasury was not opposed for economic reasons but “for political and social reasons – as a movement toward despotism, and a conspiracy against private property.” Schlesinger argued: “For those who believed, with Hamilton, that the business class had a proprietary right to government favor, the bill…seemed an assault on the very fabric of society.” 25 The question of banks became a question of economic power, class preference, and political philosophy. Historian Daniel Walker Howe wrote: “The crisis…reflected the chronic shortage of capital in the United States and the country’s dependence on inflows of foreign money. By paying off the national debt, Jackson had returned capital to Europe, and by destroying the BUS, he had made it harder to control the domestic money supply….Like the boom that preceded it, the panic manifested the extent to which America, even then was enmeshed in a global economy.” 26 The panic also manifested the degree to which banking policy impacted the economy. “The country suffered as well in the longest economic depression in the nation’s history,” wrote John Steele Gordon, who added that America’s “financial reputation suffered as well.”27

The international credit crisis had become an American banking crisis coming as it did after individual banks and governments in the U.S. overextended themselves. Historian Donald B. Cole wrote: “Starting in 1831 American imports from Great Britain exceeded exports every year but one, reaching a cumulative deficit of $48 million by the time Jackson left office. The British reinvested so much of this in American projects that there was a large outflow of gold and silver from Great Britain to the United States. Some of this specie had helped ease the Panic of 1834. Alarmed in 1836 by the loss of gold and silver, the Bank of England began to insist on specie from American banks and raised interest rates in order to force British bankers to cut back their American investments.”28 Lincoln scholar Fred Kaplan wrote: “British and European investment dried up. Illinois verged on bankruptcy, and the public backlash largely blamed the Whigs.”29 It was a double dip recession. Historian Jenny B. Wahl wrote: “The 1837 panic subsided within a few months, only to be followed by a second wave of suspensions starting in Philadelphia on October 9, 1939. Although this wave was less widespread – New Jersey, New York, and New England (except for Rhode Island) banks did not stop specie payments – the crisis lasted much longer and had more profound effects…. Failures and loan losses reduced the book assets of state banks by 45 percent, and 194 of the 729 state-chartered banks closed their doors.”30

Illinois, Land and Banks

Land sales were at the heart of the American crisis. The sales of public lands – and the resulting revenue to the U.S. Treasury – had skyrocketed in the mid-1830s. Historian Edward M Shepard noted: “The price of public lands was fixed by law at $1.25 an acre; and they were open to any purchaser, without the wholesome limits of area and the restraint to actual settlers which were afterward established. Here then was a commodity whose price to wholesale purchasers did not rise, and the very commodity by which so many fortunes had been made. In public lands, therefore, the fury of money-getting, the boastful confidence in the future of the country, reached their climax….In his messages of 1829 and 1830 Jackson not unreasonably treated the moderate increase in the sales as a proof of increasing prosperity. In 1831 his congratulations were hushed; but in 1835 he again fancied, even in the abnormal sales of that year, only an ampler proof of ampler prosperity. In 1836 he at last saw that tremendous speculation was the true significance of the enormous increase. Prices of course went up. Everybody thought himself richer and his labor worth more.”31 Illinois was not immune to such speculation.

Financial historian Bray Hammond wrote: “The sale of public lands, though another important source of federal income, was more significant as a medium of speculation. The lands concerned lay mainly in the Mississippi and Ohio river valleys. They were fertile and included promising sites for urban and industrial development….The government…kept the price low in order to avoid discrimination against settlers who were poor, but the low price was equally advantageous to professional speculators, who had already the advantage of being organized, alert, practiced, and catered to by their own banks. The latter were practically free of restraint. Each bank could count the notes of others banks as reserves and expand its loans accordingly; with the general result that the more the banks lent the more they mutually augmented their reserves and the more they were able to lend…. The more frequent and numerous transactions were, the easier to maintain the airy fabric of mutual debt and the less evident the risk to the individual participant who held the obligations of the others and supported his own by their aid.”32

In Illinois there had been a major runup in real estate prices fueled by corrupt deals between eastern land speculators and western land agents for the federal government. This speculation was not just a rural phenomenon. In his History of Illinois, Thomas Ford, who lived through this period as an Illinois politician and governor, wrote: “In the spring and summer of 1836 the great land and town lot speculation of those times had fairly reached and spread over Illinois. It commenced in this State first at Chicago, and was the means of building up that place in a year or two from a village of a few houses to a city of several thousand inhabitants. The story of the sudden fortunes made there excited at first wonder and amazement, next a gambling spirit of adventure, and lastly an all-absorbing desire for sudden and splendid wealth. Chicago had been for some time only one great town market. The plats of towns for a hundred miles around were carried there to be disposed of at auction. The eastern people had caught the mania. Every vessel coming west was loaded with them, their money and means, bound for Chicago, the great fair land of fortunes. But as enough did not come to satisfy the insatiable greediness of the Chicago sharpers and speculators they frequently consigned their wares to eastern markets. Thus, a vessel would be freighted with land and town lots for the New York and Boston markets at less cost than a barrel of flour. In fact, lands and town lots were the staple of the country, and were the only articles of export.” 33 As a surveyor in central Illinois during the 1834-1836 period, Abraham Lincoln was a beneficiary of the land boom that caused an increased demand for his services as new towns were laid out.

In Illinois and elsewhere, the Panic of 1837 had a profound impact on Americans’ attitude toward bankers. Financial historian Jane Flaherty wrote: “Those who suffered during the downturn believed the actions of private bankers created the crisis. ‘By casting doubt on the solvency of some banks,’ Harry Scheiber wrote, ‘Jackson contributed to public distrust of all banks and increased the tendency of private persons to hoard specie.’” Flaherty wrote: “The void created by the dissolution of the Second Bank of the United States, plus the public perception that bank policy had created the depression they endured, led to the fundamental reordering of the fiscal framework of the country.”34

The self-taught Abraham Lincoln understood the credit needs of government agencies, businesses and farmers. He also understood the way that the nexus of land sales and banks corrupted politics. In 1836, Lincoln’s friend and fellow legislator, attorney John Todd Stuart, challenged incumbent Congressman William May for the sprawling northern congressional district. The Sangamo Journal, the local Whig paper with which Lincoln became increasingly associated, also challenged May, according to Lincoln scholar Andy Van Meter, who wrote that “the Journal let loose with both barrels, accusing May of profiting in land speculations by borrowing money from the administration’s ‘pet’ banks and purchasing land that the original settlers had lost because of errors in their titles.”35 Stuart who had been Lincoln’s legal mentor, lost the race, but he did not lose his congressional ambitions. The economic crisis had put the state’s normally Democratic politics into flux in 1837. Illinois Democratic Congressman May, representing the northern half of Illinois, became an apostate on Van Buren economic policy. May was challenged and defeated at a Democratic convention in November 1837 by youthful attorney Stephen A. Douglas, who in turn would be upset in 1838 by Whig Stuart in a close-fought contest during which Lincoln probably debated Douglas at least once.

The impact of the Panic of 1837 was felt particularly keenly in Illinois where dreams of prosperity inflated along with prices for land. The panic affected the prices of commodities, the price of property, the viability of banks, and the future of expensive infrastructure projects. Illinois historian Theodore Calvin Pease wrote: “The panic of 1837 dashed to fragments the system of state banks which had replaced the United States Bank and which Jackson had sought to control by the specie circular. The roots of that panic perhaps lay partly in the accordance by English banks and exporters of excessive credits to our merchants; partly no doubt, in the era of unrestricted banking that followed the war on the United States Bank. The democrats insisted on the first reason, and asked if Jackson was responsible for the panic in Europe as well as for that in the United States. But the whigs laid the whole at the door of Jackson’s financial policy. In his message addressed to the special session of the legislature of 1837 [Illinois Governor Joseph] Duncan denounced the whole panic as due to the destruction of the United States Bank, the creation of state banks, and the attempt of the executive to bolster up his mistake by a cry for an exclusively specie currency. Duncan only gave official expression to what had filled the whig papers for months; the whigs gleefully professed their belief that Van Buren’s party was ruined never to rise again.”36

For Illinois, the Panic of 1837 began to hit home that summer. Historian Michael Burlingame wrote: “In July 1837…Governor Joseph Duncan summoned the legislature to Vandalia for a special session to address the consequences of the financial panic that had struck that spring, drying up the market for Illinois bonds. The state bank was in danger of losing its charter, a development that, in turn, might delay construction of the Illinois and Michigan Canal. In response to this crisis, Duncan recommended that the legislature scrap the internal improvement scheme it had passed earlier that year.”37 Illinois historian Charles Manfred Thompson, wrote: “There was a short extra session of the General Assembly in July, 1837, called by the governor to consider the difficulties that the state was having to meet its financial obligations. The panic of that year gave Governor Duncan an opportunity to express his opinion of the financial policy of the national administration, which he did in no uncertain terms. ‘At the time the President of the United States assumed the responsibility of ordering the public money to be removed from their legal deposit in the Bank of the United States, for the purpose, as he avowed, of preventing the re-charter of that institution by Congress, there never was a sounder currency, or a more healthy state of things in any government in the world.’ After showing the inadvisability of establishing the state banks, the governor went on to say, ‘Before the public were aware of the ruin which this wild scheme portended, the Executive and a portion of his party seeing their error it would seem, endeavored to escape the consequence by amusing the people with the absurd and impractical project of an exclusive hard money currency….There must be change, there must be reform. The Public Treasury must be again firmly placed in the custody of law; and all power and control must be repudiated…The patronage of the Executive must be reduced, and his power to remove public officers so modified as to prevent his displacing a faithful and competent man, either to gratify party malice, or to intimidate him in the free and independent exercise of the election franchise…That control over the public press, and Congress which has been so powerfully exercised by the appointment of newspaper editors, and members of the Senate and House of Representatives to high and lucrative offices by the executive, should as far as possible be obviated.’ This utterance reflected the attitude of the Whigs in general and the late anti-Van Buren Democrats in particular. They had no quarrel with Jackson, but they refused to support Van Buren or to approve the acts of the president, which they considered to have been inspired by unscrupulous advisers. The Democrats on their side took the opposite view. They endorsed in toto the policies of both Jackson and Van Buren, and the endorsement of the latter made a cleavage that unmistakably divided the Whigs from the Democrats.” 38 The state legislature did not act, but the politicians continued to seek political advantage.

Illinois politics and its economy were both thrown into turmoil by the Panic. Expansive dreams of the state’s development were hard to dismiss, but public faith in banks, paper money, and government had dissipated. “Democrats blamed the banks. Whigs blamed Jackson, and especially his Specie Circular,” wrote historian Daniel Walker Howe. “For a long time historians agreed with the Democrats and said that the pet banks had irresponsibly overextended their loans during the boom of 1836. But that we know that, monitored by the Treasury, the state bankers showed appropriate caution and that, except for [Roger B.] Taney’s friends in Baltimore, the pet banks were generally responsibly managed. There is more truth in the Whig argument.” The contraction resulting from the Specie Circular triggered monetary contraction, which once started was hard to reverse given the degree to which speculation had overheated the economy. The Specie Circular had done its work too well. 39

The Panic of 1837 led to a national reduction in the money supply. That led to further economic contraction and financial calamity for states like Illinois that had embarked on ambitious public works like the ones that State Representatives Lincoln and Stephen A. Douglas promoted in the 1837 session of the state legislature. As promising young politicians, they became spokesmen on economic issues for their respective parties – with Lincoln attacking and Douglas defending the Van Buren administration. As a Van Buren appointee as federal land register in Springfield, Douglas was at the center of the land speculation that gripped the country in the mid-1830s. There was money to be made in the sale of federal lands. Democrats were in a position to pocket some of it for a favored few. Lincoln wanted most of it used for internal improvements that would benefit all.

Party politics were entering a new stage as the differences between “Jackson men” and their opponents became clearer on issues like banking. Historian Theodore Calvin Pease wrote: “Out of the presidential contest in Illinois in 1835-1836, emerged the forms of the whig and democratic parties; out of the struggle over the subtreasury and the specie circular in 1837-1839 came a close alignment of the parties on party measures. Between 1835 and 1839 the doctrine of the necessity of party regularity was forced on the democratic party, and that party became a closely organized body with accepted principles. No longer could a man be saved politically by the name of Jackson unless he did the works of Jackson.”

Nationally Van Buren was the candidate of the followers of Jackson who were beginning to term themselves democrats. The old Clay-Adams men mustered around candidates with a local appeal such as Webster or William Henry Harrison, hoping thus to beat the Van Buren forces in detail and throw the election into the house of representatives. The followers of Hugh Lawson White of Tennessee occupied a somewhat different position. Practically, they were allies of the opposition to Van Buren. They professed, however, that they were really Jackson men, loyal to their past professions of faith, but unable to swallow the personality and methods of Van Buren; and they were inclined to repel indignantly the charges of their opponents that they were deserters to the Clay-Adams party of 1828 and 1832.40

Lincoln in 1837

The newly-emerging Whig party had been split among several candidates in the 1836 presidential election. Lincoln supported Tennessee Senator White over former Ohio Senator William Henry Harrison, another Whig. Democratic Vice President Van Buren easily triumphed, but he did not take office from Jackson for four months after the election. In the meantime, on January 11, 1837, Representative Lincoln delivered a major speech in the State Legislature regarding a resolution to investigate the State Bank. In the mid-1830s, noted Lincoln scholar Andy Van Meter, “The State bank of Illinois in Springfield…redeemed or cashed new settlers’ bank notes issues by banks in the communities from which the settlers came. Often ‘foreign’ notes would be heavily discounted to compensate the local bank for redeeming notes issued by unknown and possibly insolvent financial institutions.” 41 Historian Michael Les Benedict wrote that Lincoln was fighting “against a Democratic resolution to appoint a committee to investigate alleged frauds in the organization of the state bank. This proposed investigation was designed to trump up grounds to revoke the bank’s charter and was completely without legal warrant, he insisted. His admonition was directed ‘exclusively for the law-loving and law-abiding part of the House,’ he declared. ‘To those who claim omnipotence for the Legislature, and who in the plenitude of their assumed powers, are disposed to disregard the Constitution, law, good faith, moral right, and every thing else, I have not a word to say.’” 42 Lincoln’s adherence to the law was a frequent theme in this period – even when the subject might be less than politically popular as banks were. In his 1837 speech State Representative Lincoln spoke in response to the Democratic representative from Coles County, Usher Linder, a man with whom Lincoln would have a long personal and political relationship. Lincoln’s speech was laced was sarcasm and ridicule as he sought to portray the proposed investigation as a political witch hunt:

“Lest I should fall into the too common error, of being mistaken in regard to which side I design to be upon, I shall make it my first care to remove all doubt on that point, by declaring that I am opposed to the resolution under consideration, in toto. Before I proceed to the body of the subject, I will further remark, that it is not without a considerable degree of apprehension, that I venture to cross the track of the gentleman from Coles (Mr. Linder). Indeed, I do not believe I could muster a sufficiency of courage to come in contact with that gentleman, were it not for the fact, that he, some days since, most graciously condescended to assure us that he would never be found wasting ammunition on small game. On the same fortunate occasion, he further gave us to understand, that he regarded himself as being decidedly the superior of our common friend from Randolph (Mr. [James] Shields); and feeling, as I really do, that I, to say the most of myself, am nothing more than the peer of our friend from Randolph, I shall regard the gentleman from Coles as decidedly my superior also, and consequently, in the course of what I shall have to say, whenever I shall have occasion to allude to that gentleman, I shall endeavor to adopt that kind of court language which I understand to be due to decided superiority. In one faculty, at least, there can be no dispute of the gentleman’s superiority over me, and most other men; and that is, the faculty of entangling a subject, so that neither himself, or any other man, can find head or tail to it. Here he has introduced a resolution, embracing ninety-nine printed lines across common writing paper, and yet more than one half of his opening speech has been made upon subjects about which there is not one word said in his resolution.”
“Though his resolution embraces nothing in regard to the constitutionality of the Bank, much of what he has said has been with a view to make the impression that it was unconstitutional in its inception. Now, although I am satisfied that an ample field may be found within the pale of the resolution, at least for small game, yet as the gentleman has travelled out of it, I feel that I may, with all due humility, venture to follow him. The gentleman has discovered that some gentleman at Washington city has been upon the very eve of deciding our Bank unconstitutional, and that he would probably have completed his very authentic decision, had not some one of the Bank officers placed his hand upon his mouth, and begged him to withhold it. The fact that the individuals composing our Supreme Court have, in an official capacity, decided in favor of the constitutionality of the Bank, would, in my mind, seem a sufficient answer to this. It is a fact known to all, that the members of the Supreme Court, together with the Governor, form a Council of Revision, and that this Council approved this Bank Charter. I ask, then, if the extra-judicial decision – not quite, but only almost made, by the gentleman at Washington, before whom, by the way, the question of the constitutionality of our Bank never has, nor never can come – is to be taken as paramount to a decision officially made by that tribunal, by which and which alone, the constitutionality of the Bank can ever be settled? But aside from this view of the subject, I would ask, if the committee which this resolution proposes to appoint, are to examine into the constitutionality of the Bank? Are they to be clothed with power to send for persons and papers, for this object? And after they have found the Bank to be unconstitutional, and decided it so, how are they to enforce their decision? What will their decision amount to? They cannot compel the Bank to cease operations, or to change the course of its operations. What good, then, can their labors result in? Certainly none.”
“The gentleman asks, if we, without an examination, shall, by giving the State deposites [sic] to the bank, and by taking the stock reserved for the State, legalize its former misconduct? Now I do not pretend to possess sufficient legal knowledge to decide, whether a legislative enactment, proposing to, and accepting from, the Bank, certain terms, would have the effect to legalize or wipe out its former errors, or not; but I can assure the gentleman, if such should be the effect, he has already got behind the settlement of accounts; for it is well known to all, that the Legislature, at its last session, passed a supplemental Bank charter, which the Bank has since accepted, and which, according to his doctrine, has legalized all the alleged violations of its original charter in the distribution of its stock.”
“I now proceed to the resolution. By examination it will be found that the first thirty-three lines, being precisely one third of the whole, relate exclusively to the distribution of the stock by the commissioners appointed by the State. Now, sir, it is clear that no question can arise on this portion of the resolution, except a question between capitalists in regard to the ownership of stock. Some gentlemen have the stock in their hands, while others, who have more money than they know what to do with, want it; and this, and this alone, is the question, to settle which we are called on to squander thousands of the people’s money. What interest, let me ask, have the people in the settlement of this question? What difference is it to them whether the stock is owned by Judge Smith, or Sam. Wiggins? If any gentleman be entitled to stock in the Bank, which he is kept out of possession of by others, let him assert his right in the Supreme Court, and let him or his antagonist, whichever may be found in the wrong, pay the costs of suit. It is an old maxim and a very sound one, that he that dances should always pay the fiddler. Now, sir, in the present case, if any gentlemen, whose money is a burden to them, choose to lead off a dance, I am decidedly opposed to the people’s money being used to pay the fiddler. No one can doubt that the examination proposed by this resolution, must cost the State some ten or twelve thousand dollars; and all this to settle a question in which the people have no interest, and about which they care nothing. These capitalists generally act harmoniously, and in concert, to fleece the people, and now, that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel.”

“I leave this part of the resolution, and proceed to the remainder. It will be found that no charge in the remaining part of the resolution, if true, amounts to the violation of the Bank Charter, except one, which I will notice in due time. It might seem quite sufficient, to say no more upon any of these charges or insinuations, than enough to show they are not violations of the charter; yet, as…[they] are ingeniously framed and handled, with a view to deceive and mislead, I will notice in their order, all the most prominent of them. The first of these, is in relation to a connexion between our Bank and several Banking institutions in other States. Admitting this connection to exist, I should like to see the gentleman from Coles, or any other gentleman, undertake to show that there is any harm in it. What can there be in such a connexion, that the people of Illinois are willing to pay their money to get a peep into? By a reference to the tenth section of the Bank charter, any gentleman can see that the framers of the act contemplated the holding of stock in the institutions of other corporations. Why, then, is it, when neither law nor justice forbids it, that we are asked to spend our time and money, in inquiring into its truth?”
“The next charge, in the order of time, is, that some officer, director, clerk or servant of the Bank, has been required to take an oath of secrecy in relation to the affairs of said Bank. Now, I do not know whether this be true or false – neither do I believe any honest man cares. I know that the seventh section of the charter expressly guarantees to the Bank the right of making, under certain restrictions, such by-laws as it may think fit; and I further know that the requiring an oath of secrecy, would not transcend those restrictions. What, then, if the Bank has chosen to exercise this right? Who can it injure? Does not every merchant have his secret mark? and who is ever silly enough to complain of it? I presume if the Bank does require any such oath of secrecy, it is done through a motive of delicacy to those individuals who deal with it. Why, sir, not many days since, one gentleman upon this floor, who, by the way I have no doubt is now ready to join this hue and cry against the Bank, indulged in a philippic against one of the Bank officers, because, as he said, he had divulged a secret.”
“Immediately following this last charge, there are several insinuations in the resolution, which are too silly to require any sort of notice, were it not for the fact, that they conclude by saying, “to the great injury of the people at large.” In answer to this I would say, that it is strange enough, that the people are suffering these “great injuries,” and yet are not sensible of it! Singular indeed that the people should be writhing under oppression and injury, and yet not one among them to be found, to raise the voice of complaint. If the Bank be inflicting injury upon the people, why is it, that not a single petition is presented to this body on the subject? If the Bank really be a grievance, why is it, that no one of the real people is found to ask redress of it? The truth is, no such oppression exists. If it did, our table would groan with memorials and petitions, and we would not be permitted to rest day or night, till we had put it down. The people know their rights; and they are never slow to assert and maintain them, when they are invaded. Let them call for an investigation, and I shall ever stand ready to respond to the call. But they have made no such call. I make the assertion boldly, and without fear of contradiction, that no man, who does not hold an office, or does not aspire to one, has ever found any fault of the Bank. It has doubled the prices of the products of their farms, and filled their pockets with a sound circulating medium, and they are all well pleased with its operations. No, Sir, it is the politician who is the first to sound the alarm, (which, by the way, is a false one.) It is he, [who,] by these unholy means, is endeavoring to blow up a storm that he may ride upon and direct. It is he, and he alone, that here proposes to spend thousands of the people’s public treasure, for no other advantage to them, than to make valueless in their pockets the reward of their industry. Mr. Chairman, this movement is exclusively the work of politicians; a set of men who have interests aside from the interests of the people, and who, to say the most of them, are, taken as a mass, at least one long step removed from honest men. I say this with the greater freedom because, being a politician myself, none can regard it as personal.”
“Again, it is charged, or rather insinuated, that officers of the Bank have loaned money at usurious rates of interest. Suppose this to be true, are we to send a committee of this House to enquire into it? Suppose the committee should find it true can they redress the injured individuals? Assuredly not. If any individual had been injured in this way, is there not an ample remedy, to be found in the laws of the land? Does the gentleman from Coles know, that there is a statute standing in full force, making it highly penal, for an individual to loan money at a higher rate of interest than twelve per cent? If he does not he is too ignorant to be placed at the head of the committee which his resolution proposes; and if he does, his neglect to mention it, shows him to be too uncandid to merit the respect or confidence of any one.”
“But besides all this, if the Bank were struck from existence, could not the owners of the capital still loan it usuriously, as well as now? Whatever the Bank, or its officers, may have done, I know that usurious transactions were much more frequent and enormous, before the commencement of its operations, than they have ever been since.”
“The next insinuation is, that the Bank has refused specie payments. This, if true, is a violation of the charter. But there is not the least probability of its truth; because, if such had been the fact, the individual to whom payment was refused, would have had an interest in making it public, by suing for the damages to which the charter entitles him. Yet no such thing has been done; and the strong presumption is, that the insinuation is false and groundless.”
“From this to the end of the resolution, there is nothing that merits attention – I therefore drop the particular examination of it.”
“By a general view of the resolution, it will be seen that a principal object of the committee is, to examine into, and ferret out, a mass of corruption, supposed to have been committed by the commissioners who apportioned the stock of the Bank. I believe it is universally understood and acknowledged, that all men will ever act correctly, unless they have a motive to do otherwise. If this be true, we can only suppose that the commissioners acted corruptly, by also supposing that they were bribed to do so. Taking this view of the subject, I would ask if the Bank is likely to find it more difficult to bribe the committee of seven, which we are about to appoint, than it may have found it to bribe the commissioners?”
(Here Mr. Linder called to order. The Chair decided that Mr. Lincoln was not out of order. Mr. Linder appealed to the House; but before the question was put, withdrew his appeal, saying, he preferred to let the gentleman go on; he thought he would break his own neck. Mr. Lincoln proceeded) -
“Another gracious condescension. I acknowledge it with gratitude. I know I was not out of order; and I know every sensible man in the House knows it. I was not saying that the gentleman from Coles could not be bribed, nor, on the other hand, will I say he could. In that particular, I leave him where I found him. I was only endeavoring to show that there was at least as great a probability of any seven members that could be selected from this House, being bribed to act corruptly, as there was, that the twenty-four commissioners had been so bribed. By a reference to the ninth section of the Bank charter, it will be seen that those commissioners were John Tilson, Robert K. McLaughlin, Daniel Wann, A. G. S. Wight, John C. Riley, W. H. Davidson, Edward M. Wilson, Edward L. Pierson, Robert R. Green, Ezra Baker, Aquilla Wren, John Taylor, Samuel C. Christy, Edmund Roberts, Benjamin Godfrey, Thomas Mather, A. M. Jenkins, W. Linn, W. S. Gilman, Charles Prentice, Richard J. Hamilton, A. H. Buckner, W. F. Thornton, and Edmund D. Taylor.”
“These are twenty-four of the most respectable men in the State. Probably no twenty-four men could be selected in the State, with whom the people are better acquainted, or in whose honor and integrity, they would more readily place confidence. And I now repeat, that there is less probability that those men have been bribed and corrupted, than that any seven men, or rather any six men, that could be selected from the members of this House, might be so bribed and corrupted; even though they were headed and led on by “decided superiority” himself.”
“In all seriousness, I ask every reasonable man, if an issue be joined by these twenty-four commissioners, on the one part, and any other seven men, on the other part, and the whole depend upon the honor and integrity of the contending parties, to which party would the greatest degree of credit be due? Again: Another consideration is, that we have no right to make the examination. What I shall say upon this head, I design exclusively for the law-loving and law-abiding part of the House. To those who claim omnipotence for the Legislature, and who in the plenitude of their assumed powers, are disposed to disregard the Constitution, law, good faith, moral right, and every thing else, I have not a word to say.”
“But to the law-abiding part I say, examine the Bank charter, go examine the Constitution; go examine the acts that the General Assembly of this State has passed, and you will find just as much authority given in each and every of them, to compel the Bank to bring its coffers to this hall, and to pour their contents upon this floor, as to compel it to submit to this examination which this resolution proposes. Why, sir, the gentleman from Coles, the mover of this resolution, very lately denied on this floor, that the Legislature had any right to repeal, or otherwise meddle with its own acts, when those acts were made in the nature of contracts, and had been accepted and acted on by other parties. Now I ask, if this resolution does not propose, for this House alone, to do, what he, but the other day, denied the right [of] the whole Legislature to do? He must either abandon the position he then took, or he must now vote against his own resolution. It is no difference to me, and I presume but little to any one else, which he does.”
“I am by no means the special advocate of the Bank. I have long thought that it would be well for it to report its condition to the General Assembly, and that cases might occur, when it might be proper to make an examination of its affairs by a committee. Accordingly, during the last session, while a bill supplemental to the Bank charter, was pending before the House, I offered an amendment to the same, in these words: “The said corporation shall, at the next session of the General Assembly, and at each subsequent General Session, during the existence of its charter, report to the same the amount of debts due from said corporation; the amount of debts due to the same; the amount of specie in its vaults, and an account of all lands then owned by the same, and the amount for which such lands have been taken; and moreover, if said corporation shall at any time neglect or refuse to submit its books, papers, and all and every thing necessary for a full and fair examination of its affairs, to any person or persons appointed by the General Assembly, for the purpose of making such examination, the said corporation shall forfeit its charter.”
“This amendment was negatived by a vote of 34 to 15. Eleven of the 34 who voted against it, are now members of this House; and though it would be out of order to call their names, I hope they will all recollect themselves, and not vote for this examination to be made without authority, inasmuch as they refused to reserve the authority when it was in their power to do so.”
“I have said that cases might occur, when an examination might be proper; but I do not believe any such case has now occurred; and if it has, I should still be opposed to making an examination without legal authority. I am opposed to encouraging that lawless and mobocratic spirit, whether in relation to the bank or any thing else, which is already abroad in the land; and is spreading with rapid and fearful impetuosity, to the ultimate overthrow of every institution, or even moral principle, in which persons and property have hitherto found security.”
“But supposing we had the authority, I would ask what good can result from the examination? Can we declare the Bank unconstitutional, and compel it to cease operations? Can we compel it to desist from the abuses of its power, provided we find such abuses to exist? Can we repair the injuries which it may have done to individuals? Most certainly we can do none of these things. Why then shall we spend the public money in such employment? O, say the examiners, we can injure the credit of the Bank, if nothing else. Please tell me, gentlemen, who will suffer most by that? You cannot injure, to any extent, the Stockholders. They are men of wealth – of large capital; and consequently, beyond the power of fortune, or even the shafts of malice. But by injuring the credit of the Bank, you will depreciate the value of its paper in the hands of the honest and unsuspecting farmer and mechanic, and that is all you can do. But suppose you could effect your whole purpose; suppose you could wipe the Bank from existence, which is the grand ultimatum of the project, what would be the consequence? Why, sir, we should spend several thousand dollars of the public treasure in the operation, annihilate the currency of the State; render valueless in the hands of our people that reward of their former labors; and finally, be once more under the comfortable obligation of paying the Wiggins’ loan, principal and interest.”43

The speech was a rare recorded example of Lincoln’s economic thinking during the period. Lincoln biographer Paul Simon wrote: “Resolutions regarding the national bank were frequent during Lincoln’s legislative years, and because the vote on the resolutions was paragraph by paragraph, rather than on the resolution as a whole, the reader can follow Lincoln’s thinking.” For example:

“A resolution presented by Jesse B. Thomas, Jr., of Madison County finds Lincoln supporting the ideas of a national bank. But a paragraph concerning the action of the United States Senate for its ‘arbitrary and unjustifiable’ treatment of President Jackson on the bank issue also received his support…”

Lincoln introduced a resolution calling on the federal government to return to Illinois 20 per cent of the money received by the federal government for lands in Illinois. Since the federal government owed most of the land in the state, if the state could get some of the money as the land was sold, it would represent a substantial source of income. The resolution was defeated.44

“The Whigs wanted to use the bank as a buffer for workers against high interest so works could receive the ‘rewards of their former labor,’” wrote Lincoln scholar Frank Coburn. “In the 1837 statement, the 28-year-old Lincoln made his earliest reference to this idea. French historian Olivier Fraysse argued that Lincoln’s support of the banks was derived from his wish to build an Eastern type economy in the West. Perhaps, but during the debate over the Illinois State Bank, Lincoln first voiced his fundamental economic principle. In the contest of the debates centered on internal improvements and banking, this principle of an individual’s right to rise was not radical. What was noteworthy was Lincoln seemed to be advocating governmental action to help the individual’s rise.”45

National politics on issues like banking were reflected in the Illinois State Legislature. In the 1836-37 session, wrote Paul Simon: “On national issues, Lincoln and Douglas were almost always in opposition. Douglas upheld the Jackson administration; Lincoln opposed it. Regarding the state attitude toward banks, they were again generally in disagreement. Douglas wanted the banks investigated; Lincoln did not. A bank bill sought to limit banks to 10 per cent interest on their loans. Lincoln was for it; Douglas against it. Both favored the establishment of branch banks so that more communities could have banking facilities.”46 Governor Thomas Ford wrote: “After the internal improvement system was adopted…its friends increased the capital of these banks by making the State a stockholder in each. The capital of the State Bank was increased two millions dollars, and the Illinois Bank one million four hundred thousand dollars.”47

1838-1840

The political lines between Whigs and Democrats blurred in Illinois as politicians struggled to make sense of both politics and economics. Daniel Walker Howe wrote: “From a modern point of view, Van Buren’s embrace of laissez-faire seems paradoxical. The hard-money Jacksonian constituents he was courting did not oppose government intervention in the economy out of any preference for commercial values. On the contrary, they deeply distrusted large businesses, especially banks, and wanted to make sure government did them no favors. The only kinds of government intervention they knew about seemed to them to reinforce the privileges of the wealthy, not to counteract them. In another irony, the notoriously evasive Van Buren ended up far more rigidly committed to a particular economic and banking policy than the famously willful Jackson had ever been. Meanwhile, the Whigs, the party of the business community, reminded people that they favored government planning. Henry Clay deplored Van Buren’s ‘cold and heartless insensibility’ and invoked his own American System of integrated development as a pathway to economic recovery.”48

Although the economy appeared to recover in 1838, so did speculation. Another economic blow hit in 1839. According to historian Edward M. Shepard: “In the early fall the Bank of the United States agreed to loan Pennsylvania $2,000,000; and for the loan obtained the privilege of issuing $5 notes, having before been restricted to notes of $20 and upward. ‘Thus has the Van Buren State of Pennsylvania,’ it was boasted, ‘enabled the banks to overcome the reckless system of a Van Buren national administration.’ The price of cotton, which had risen to 16 cents a pound, fell in the summer of 1839, and in 1840 touched as low a point as 5 cents. In the Northwest many banks had not yet resumed since 1837. To avoid execution sales it was said that two hundred plantations had been abandoned and their slaves taken to Texas. The sheriff, instead of the ancient return, nulla bona, was said, in the grim sport of the frontier, to indorse on the fruitless writs “G. T.,” meaning “Gone to Texas.”49 The economy would stay in the doldrums until 1843.

Meeting in December 1838, “the House somewhat desultorily addressed banking questions yet again,” wrote Michael Burlingame. “Two weeks into the session the Committee on Finance submitted a report written, in all likelihood, by Lincoln. Reflecting the standard Whig position, it condemned President Van Buren’s proposal for an independent subtreasury, arguing that ‘the extraordinary and unprecedented degree of prosperity which accompanied us in our onward march during the period of this union [of banks and government].’ The generally dispassionate document criticized the inconsistency of congressional Democrats who between 1831 and 1835 had voted against proposals to separate banking from the government but who now supported Van Buren’s plan to do so. The committee expressed concern that the separation of bank and state could lead to the marriage of public funds and executive patronage, an alliance that might corrupt elections. Since the system already in place had worked so well, it should not be abandoned: ‘Your committee do not wish to be understood as resisting, without inquiry or examination, all changes in the fiscal affairs of the Government,’ the report said. But, it asked, ‘what are the grounds, what are the reasons and considerations which render this [proposed] change necessary and proper?’”50

Lincoln biographer Paul Simon wrote: “Illinois banking problems and the national issue of whether there should be a United States Bank dominated much of this [1838-1839] session. A move to have the state collect its revenue in gold or silver exclusively was defeated, Lincoln voting to defeat it. In the banking field, his actions were largely influenced by his desire to help the State Bank at Springfield.” Simon reported: “The minority report of the Finance Committee favored money in specie because ‘the dangers from fire and robbery are less, as the precious metals, though melted, would still retain their intrinsic value; and the difficulties of carrying off and concealing gold and silver are much greater than purloining and secreting paper money.’ Lincoln did not share this thinking. 51 Lincoln biographer Albert Beveridge wrote: “The Whigs then struck their next blow by Senate Resolution bitterly condemning the National Administration for its ‘partiality’ in depositing in Missouri State Banks funds collected in Illinois, especially from the sales of public lands situated in Illinois, and insisting that such revenue should be deposited in Illinois banks. John Calhoun, the Democratic member from Sangamon, countered with a resolution that, in view of the Act of Congress requiring State Banks to comply with certain conditions in order to become government depositories, the Presidents of the two Illinois State Banks be required to inform the House whether they had done so.” Beveridge wrote: “Harvey T. Pace of Jefferson County moved to strike out the word ‘partiality’ from the Senate resolutions. Lincoln, in charge of them, objected. He would agree to omit the word if he ‘thought it was not true.’”52

“During a series of amendments and debates on the question of a national bank, one legislator introduced an amendment which said ‘that it is inexpedient to consume the time of the Legislature and waste the money of the people in acting on resolutions which merely involve national politics. The amendment carried the House, with Lincoln against it. The Senate defeated it,” wrote Lincoln scholar Paul Simon. “The endless debate on the national banking policies was almost meaningless. It convinced nobody, changed no votes in Washington, and probably had little, if any effect on public opinion.” It was in essence a sideshow to deflect attention from Illinois’ own deep economic problems. Simon added: “Lincoln voted against a proposal to prohibit the use of paper money in Illinois ‘of less denomination than five dollars,’ a resolution which carried 63-20. He was the only Sangamon member to vote against it.”53

National and state politics had heated up by the fall of 1839. Illinois was in fiscal trouble over its excessive spending on internal improvements. The situation had been compounded by the unfavorable (and perhaps corrupt) terms that Illinois bond negotiators had arranged for the loans – much to Governor Thomas Carlin’s chagrin. 54 This was a stressful period in Illinois. Governor Carlin called for an end to new internal improvement projects that the state government could not afford. He called the state legislature into special session for December in Springfield. (Because it was the first session in the new state capital, the state capitol was not yet ready and meetings would be held elsewhere in Springfield.) Members of the legislature thought the state should back out of at least one of its funding contracts. According to Albert Beveridge, “Members were nervous, irritable, suspicious. Their state of mind and temper indicated that the session would be what Governor Ford afterward described it, full of ‘bitterness and personal hatred.’”55

State Representative Lincoln saw the solution to the state’s economic problems in assigning proceeds from federal lands to the states which then could be used to fund internal improvements. Beveridge called this “scheme…Lincoln’s favorite idea and had been since his first candidacy for the Legislature.” 56 But Lincoln’s support of the internal improvements had softened somewhat by late 1839. He attended a Whig convention in Springfield that resolved: “We are opposed to the creation of so large a debt, as it is now discovered, would be entailed on the state by carrying out the internal improvement System, as contemplated by law; and that we believe the Systems needs classification, curtailment or suspension.”57 Lincoln nevertheless thought something should be salvaged of the public works program, telling the House of Representatives in January 1840 that they should try “to save something to the State, from the general wreck…at least some portion of our Internal Improvements should be carried on. That after the immense debt, we have incurred in carrying these works almost to completion, at least one work calculated to yield something towards defraying its expense, should be finished and put in operation.”58

In addition to its fiscal crisis, Illinois faced a related one concerning the State Bank. When the legislature was convened in December 1839, Lincoln was appointed to a joint legislative committee charged with investigating the bank. A resolution calling for repeal of the internal improvements program narrowly failed to pass the House. Democrats tried to blame Whigs for problems with both the internal improvements program and the state bank. In a situation reminiscent of the demise of the Second Bank of the United States earlier in the decade, Democrats sought to end operations of the State Bank. When the Bank suspended payment of notes in specie for more than sixty days, its charter automatically terminated. As Lincoln predicted, “The legislature…has suffered the Bank to forfeit it’s charter without Benefit of Clergy.” 59 A month later, he predicted: “The Bank will be resusitated [sic] with some trifling modifications.”60 Lincoln scholar Paul Simon wrote that “before the session began, a highly sympathetic history of the State Bank of Springfield appeared in the Sangamo Journal. It was signed ‘A Looker-on.’ In view of Lincoln’s interest in the State Bank, and the fact that the initials of the signature are his initials, it is probable that he wrote the history.” Simon continued:

“The Governor in his message to the legislature, revealed an attitude critical of the State Bank. He did not favor paper money, and he wanted a state investigation because the State Bank refused to extend loans, demanded payment of obligations due, and declined to pay some of its own bills. Governor Carlin wanted ‘a rigid and impartial investigation.’”
“When a motion passed to investigate the Bank o f Illinois at Shawneetown, Lincoln joined the majority in killing the move 55-24. Lincoln, however, had Springfield on his mind, not Shawneetown. There already was one investigation of the State Bank at Springfield in progress, and things were going well there. The measure authorizing the investigation passed the second day of the session – sooner than the Governor called for it in his message….Obviously, Lincoln was guiding a movement in defense of the State Bank. He did not want to cover up anything scandalous, but he wanted to save the State Bank.”61

Paul Simon wrote: “The final compromise was a measure permitting the State Bank to refuse payment in specie until the end of the next session of the legislature, a provision that would make the next session a lively one. This was a victory for Lincoln since most had agreed with a newspaper comment at the beginning of the session: “The State Bank is dead for all purposes.’”62

Lincoln’s Sub-Treasury Speech

The State Bank issue was an exception to the general inattention to state problems during that period. Rather than focus on the fiscal problems that Illinois was facing in late 1839, Illinois politicians in Springfield decided to warm up their debating skills concerning national problems in preparation for the presidential election of 1840. Two series of debates were held in Springfield – one in November and one in December of 1839. George W. Smith wrote: “In Springfield in the winter following, when the legislature was in session, a new form of campaigning sprang up. It was called the ‘Three day debate.’ This debate was informal and yet they observed a few simple rules. The Whig cause was supported by Walker, Lincoln, Baker, Browning and Logan. The Democratic cause was upheld by Douglas, Lamborn, Wiley and Peck. The debate was so good natured, informal, and helpful that a request was presented that the debate he repeated and the request was compiled with; not only so but similar debates were held in nearby towns in the spring of 1840. This form of campaigning brought Lincoln and Douglas together in several smaller towns which gave rise to the story that the great debates of 1858 were held in these towns.” 63

Lincoln and Douglas spoke on the sub-treasury scheme at the beginning of the debate series on December 18. Other speakers followed. 64 Lincoln’s Subtreasury speech was not typical of the campaign which emphasized hoopla over substance. Fred Kaplan wrote: “With the 1840 national political campaign well under way, Douglas set out the Van Buren platform vigorously, particularly on the issue of a sub-treasury versus a national bank, a continuation of the almost forty-year-long battle between the paper-based centralized monetary policy and banking system originated by Alexander Hamilton and the hard-money decentralized anti-Bank policy of Thomas Jefferson and Andrew Jackson.” 65 Democrats had their own problems during this period. Bray Hammond wrote that “Van Buren had more than the government’s fiscal affairs to worry about. He had also a schism in the Democratic party – a schism that was open and bitter in his own New York and that was potential everywhere. It was between the bank and the anti-bank Democrats. So long as the two wings had been working to destroy the federal bank, the schism had been overlooked. Now that the bank had been ‘destroyed,’ there was nothing to hold them together and much to drive them apart. To one wing of the party, destruction of the federal Bank had been in the interest of the state banks, but to the other wing it had been prelusive to destruction of the state banks too.”66

The substantive detail in Lincoln’s speech on the Sub-Treasury proposal was impressive given that Lincoln had been busy throughout December on both legal and legislative business. Lincoln began by explaining the impact of the sub-treasury system on the money supply: “By the Sub-Treasury, the revenue is to be collected, and kept in iron boxes until the government wants it for disbursement; thus robbing the people of the use of it, while the government does not itself need it, and while the money is performing no nobler office than that of rusting in iron boxes. The natural effect of this change of policy, every one will see, is to reduce the quantity of money in circulation.” Lincoln continued: “This position is strengthened by the recollection, that the revenue is to be collected in specie, so that the mere amount of revenue is not all that is withdrawn, but the amount of paper circulation that the 40 millions would serve as a basis to, is withdrawn; which would be in a sound state at least 100 millions.” 67 According to Lincoln, “It may be said, that what the debtor loses, the creditor gains by this operation; but on examination this will be found true only to a very limited extent. It is more generally true that all lose by it. The creditor, by losing more of his debts, than he gains by the increased value of those he collects; the debtor by either parting with more of his property to pay his debts, that he received in contracting them; or, by entirely breaking up in his business, and thereby being thrown upon the world in idleness.”68

Lincoln, the self-taught student of economics, contended: “When the quantity of money shall be reduced, and consequently every thing under individual control brought down in proportion, the price of those lands, being fixed by law, will remain as now. Of necessity, it will follow that the produce or labor that now raises money sufficient to purchase 80 acres, will then raise but sufficient to purchase 40, or perhaps not that much. And this difficulty and hardship will last as long, in some degree, as any portion of these lands shall remain undisposed of. Knowing, as I well do, the difficulty that poor people now encounter in procuring homes, I hesitate not to say, that when the price of the public lands shall be doubled or trebled; or, which the same thing produce and labor cut down to one-half or one-third of their present prices, it will be little less than impossible for them to procure those homes at all.”69

Lincoln used the past to predict the future with two metaphors: “What has once happened, will invariably happen again, when the same circumstances which combined to produce it, shall again combine in the same way. We all feel that we know that a blast of wind would extinguish the flame of the candle that stands by me. How do we know it? We have never seen this flame thus extinguished. We know it, because we have seen through all our lives, that a blast of wind extinguishes the flame of a candle whenever it is thrown fully upon it. Again, we all feel to know that we have to die. How? We have never died yet. We know it, because we know, or at least think we know, that of all the beings, just like ourselves, who have been coming into the world for six thousand years, not one is now living who was here two hundred years ago.”

“I repeat then, that we know nothing of what will happen in future, but by the analogy of experience, and that the fair analogy of past experience fully proves that the Sub-Treasury would be a less safe depository of the public money than a National Bank. Examine it.”70

Midway through the Sub-Treasury speech, Lincoln drew particular attention to Springfield Democrat John Calhoun, a longtime Springfield friend who was scheduled to reply to him two days later: “Omitting, for want of time, what I had intended to say as to the effect of the Sub-Treasury, to bring the public money under the more immediate control of the President, than it has ever heretofore been, I now only ask the audience, when Mr. Calhoun shall answer me, to hold him to the questions. Permit him not to escape them. Require him either to show, that the Sub-Treasury would not injuriously affect the currency, or that we should in some way, receive an equivalent for that injurious effect. Require him either to show that the Sub-Treasury would not be more expensive as a fiscal agent, than a Bank, or that we should, in some way be compensated for that additional expense. And particularly require him to show, that the public money would be as secure in the Sub-Treasury as in a National Bank, or that the additional insecurity would be over-balanced by some good result of the proposed change.”71

Lincoln’s sarcasm increased as it had in his legislative speech on banking in 1837. “As he proceeded,” notes Michael Burlingame, “Lincoln abandoned his didactic exposition of economic theory and history and began to scourge the Jackson and Van Buren administrations for their extravagant spending. He went on at length to rebut Douglas’s attempt to explain the federal government’s unusual expenses in 1838. Lincoln was occasionally abusive: he ridiculed arguments of the opponents of the Bank of the United States as ‘absurd;’ he called Douglas ‘stupid’ and ‘deserving of the world’s contempt;’ and he labeled one of Douglas’s arguments ‘supremely ridiculous.’ Lincoln indulged in some demagoguery, asking of the subtreasury: ‘was such a system for benefiting the few at the expense of the many, ever before devised?’” Acknowledging the “bombast” that “marred this speech….Lincoln made some legitimate economic points,” wrote Burlingame. “The independent treasury scheme would have been deflationary, though not as badly as Lincoln predicted. Moreover, he sensibly praised the useful regulatory function that the Bank of the United States had served, something like the role that the Federal Reserve System would play at a later time.” 72 Historian Gabor Boritt wrote of the Sub-Treasury speech: “The burden of this well-researched, sometimes lecture-like address was a comparison of the national bank and the independent treasury, to the enormous disadvantage of the latter. Lincoln’s approach was analytical and relied primarily on ‘the experience of the past’ rather than on economic theory. His first and most important argument, however, was based on the quantity theory of money.” Boritt wrote:

“The subtreasury, he charged, would drastically reduce the circulating medium of the country even though ‘money is only valuable while in circulation.’ Government funds that formerly had been part of the money supply would be allowed to rust in iron boxes. Since the intention was to collect revenues in specie, the effect of the system would be doubly disastrous. Both the nation’s gold and silver supply and the paper issues based on it would be curtailed. The United States had $60 to $80 million in precious metals, at most, Lincoln judged, and the federal expenditures of $40 million during the previous fiscal year suggested to him a 40% reduction of the currency.”73

Historian Boritt wrote: “While arguing thus he used an extremely conservative ratio of specie to paper in circulation, four to ten, and so underestimated the issue of banks. He more than balanced the picture, however, by assuming in his calculations that all revenues would be collected at once, producing a sudden disappearance of much precious metal, and assuming also that the large federal deficits of recent years would be an permanent feature of democratic governance. He thereby exaggerated the foreseeable effect of the subtreasury on circulation and found himself unable to ‘contemplate without terror, the distress, ruin, bankruptcy and beggary, that must follow.’” 74 Of Lincoln’s speech Lincoln scholar William Lee Miller wrote: “After a long and rigorous argument that the Whig/Federalist National bank had been and would be superior to the Jackson/Van Buren alternative, Lincoln, rounding into the home stretch, suddenly shifted into overdrive…” Miller emphasized the “grandiosity” with which Lincoln concluded: “Broken by it, I, too, may be; bow to it I never will. The probability that we may fall in the struggle ought not to deter us from the support of a cause we believe to be just; it shall not deter me.”75

Still, it was an impressive performance. Lincoln friend Joshua Speed recalled: “Mr. Lincoln delivered this speech without manuscript or notes. It filled seven columns in the Sangamon Journal, and was pronounced by all who heard it as exactly what he had said.” 76 The Quincy Whig reported that Lincoln delivered “a speech which no man can answer, but Calhoun will try Saturday evening.” 77 Democrats, however, claimed to be less impressed by Lincoln’s effort. “Though Mr. Lincoln may be a believer in the practability and usefulness of an inconvertible paper currency, we are no believers in that doctrine,” reported the State Register more than a month after the speech had been delivered. “When we notice the strong terms which Mr. Lincoln employs in making use of the argument, we feel justified in saying, that whether its use arises from ignorance of the subject under discussion, or from a design to mislead individuals who it is supposed will not take the trouble to investigate the matter, it is alike discreditable to those who advance it.” 78 The State Register denigrated Lincoln’s remarks: “We derive great pleasure from the fact, that powerful as it is thought to be by them, that it can be answered with so much ease and effect.” 79 John M. Palmer, then an Illinois Democrat but a Republican by the mid-1850s, later admitted he was impressed by a Lincoln speech he witnessed in December 1839. Lincoln “surprised me by his ability and by his apparent logical frankness. He seemed to concede to his adversary almost everything he could claim, but I observed that he always found means to escape the effect of his own concessions. His language was simple but exact. His statements were clear and his arguments must have given great satisfaction to the party he represented. He asserted his propositions with firmness and supported them in the most effective manner.”80

1840-1842

Other Whigs recognized the importance of Lincoln’s arguments. According to Michael Burlingame, “Lincoln gave such a powerful address that it became the Illinois Whig Party’s textbook for 1840.” 81 Lincoln scholar Douglas L. Wilson noted that “To judge from its reception, the speech was considered extremely effective. Lincoln’s arguments were hard-hitting and tightly targeted, using the close reasoning that became his trademark. Although the body of his speech was crafted in disciplined prose, he allowed himself a florid and expansive peroration that outdid the rhetoric even of the Lyceum address: ‘If ever I feel the soul within me elevate and expand to those dimensions not wholly unworthy of its Almighty Architect, it is when I contemplate the cause of my country, deserted by all the world beside, and I standing up boldly and alone and hurling defiance at her victorious oppressors. Here, without contemplating consequences, before High Heaven, and in the face of the world, I swear eternal fidelity to the just cause, as I deem it, of the land of my life, my liberty and my love.’” The election year of 1840 was “pivotal” for Lincoln, noted Wilson. “At the outset he was still, as his law student, Milton Hay, put it, ‘outranked’ by such men as Stuart, Logan, John J. Hardin, Edward D. Baker, and Orville H. Browning.” But given his rhetorical efforts expounding Whig economic positions in the Harrison campaign, Lincoln came “to prominence by this time as a stump speaker.” 82 Lincoln’s mastery of history and economics were paying off. The erudition of his speeches belied the paucity of his formal education.

Clearly, Lincoln identified himself in the Hamilton-Clay tradition. Nearly a decade later, Lincoln later said of the first Administration of President George Washington: “When the bill chartering the first bank of the United States passed Congress, it’s constitutionality was questioned. Mr. Madison, then in the House of Representatives, as well as others, had opposed it on that ground. Gen: Washington, as President, was called on to approve or reject it. He sought and obtained on the constitutional question the separate written opinions of Jefferson, Hamilton and Edmund Randolph; they then being respectively Secretary of State, Secretary of the Treasury, and Attorney General. Hamilton’s opinion was for the power; while Randolph’s and Jefferson’s were both against it. Mr. Jefferson, after giving his opinion decidedly against the constitutionality of that bill, closes his letter with the paragraph which I now read:

“It must be admitted, however, that, unless the President’s mind, on a view of every thing, which is urged for and against this bill, is tollerably clear that it is unauthorized by the constitution; if the pro and the con hang so even as to ballance his judgment, a just respect for the wisdom of the legislature, would naturally decide the ballance in favor of their opinion: it is chiefly for cases, where they are clearly misled by error, ambition, or interest, that the constitution has placed a check in the negative of the President.83

Jeffersonians had rejected the legal foundation and economic impact of Hamilton’s system. Historian James Roger Sharp wrote: “Hamilton’s financial program, which had created the paper system, was not objected to so much for what it was as for how it affected American society. The funding, assumption, and bank schemes were seen as instruments that destroyed public virtue and replaced it with an insidious and corroding selfishness that, in turn, corrupted the people’s servants as well as republicanism itself.”84 Historian Daniel Walker Howe observed: “In the 1830s and ’40s Lincoln consistently defended both state and national banking. To him, the assault on the Bank of the United States was part of a general breakdown of respect for property and morality that was also manifesting itself in lynch law.” 85

As expected, President Van Buren won Illinois’s Electoral College votes in 1840, but lost nationally to William Henry Harrison. Shortly after the 1840 election, the State Legislature convened in special session to deal with the problems caused by the Panic of 1837 and the state’s growing debts. The Democrats chose to demonize the State Banks. Historian Daniel Walker Howe wrote: “Once the federal government legally ‘divorced’ its pet banks (as the saying went), responsibility for bank regulation fell to the states. At the state level, Democrats pursued a variety of banking policies. ‘Politically the Jacksonians were happiest and most united when they were hunting down the dread bank enemy, but once they had their adversary cornered they never knew quite what to do,’ one historian has noted. Some Democratic state governments opted to regulate banks, some for a state-run monopoly bank, while some merely banned bank notes below ten or twenty dollars.”86

Historian Charles Manfred Thompson wrote: “On account of deplorable financial conditions due to the collapse of the internal improvement scheme, and to the suspension of specie payment by the state banks, the newly elected General Assembly was called together in special session, the meeting taking place two weeks before the regular session should convene pursuant to the constitution, on the first Monday in December, 1840. The house organized by electing William Lee Davis Ewing speaker over Abraham Lincoln, by a strict party vote. In the senate the Democrats were in the majority by almost two to one, and that body, like the house, organized on party lines. The two weeks’ special session was taken up in devising ways to minimize the evils resulting from the suspension of specie payments and from a depreciated bank currency. In spite of the fact that a Democratic legislature had chartered the two state banks, the State Bank of Illinois, and the Bank of Illinois, that party now turned its fury upon these institutions, not because it, as a party, was opposed to state banks in general, but rather because it claimed, and with some justice, that from the beginning both banks had been administered by Whig officials to the detriment of the Democratic party as an organization, and to its members as individuals. A law of 1839-40 had authorized the suspension of specie payment until the adjournment of the next session of the General Assembly, provided no legislation was enacted upon the matter during that session; and in an attempt to continue a legalized suspension into the year 1841 the Whig members of both houses concerted to prevent sine die adjournment of the special session.” 87 Michael Burlingame wrote: “It seemed unlikely that Illinois could meet the interest payments due on January 1. Because the new capitol was still not quite ready for occupancy, the legislators met in Springfield churches.”88

The state bank’s existence depended on the continuation of the special session. Adjournment would mean dissolution. Democrats wanted the bank to expire and Whigs did not – so the Whigs tried to break the quorum in the House of Representatives in order to prolong the bank’s life. If the legislature could be extended until December 7, when the legislature was to begin its regular session, then the bank’s life would be extended until March when the regular session would end and so would the bank. Burlingame wrote: “The Whigs, hoping to have the regular session combined with the special session and thus postpone the bank’s day of reckoning, boycotted the legislature, thereby preventing the necessary two-thirds quorum for adjournment sine die. When the representatives gathered on December 5, the Whigs stayed away, except for Lincoln, Joseph Gillespie, and Asahel Gridley, who were to observe the proceedings and demand roll call votes.” 89 The Whigs miscalculated. By the time they realized there was a quorum present to adjourn, the quorum had already been ascertained by the sergeant at arms. Too late, Lincoln and two colleagues jumped out of the window of the church where the lower house was meeting.90 It was one of the most embarrassing incidents of Lincoln’s life and subjected him to embarrassing ridicule from Democrats.

The bank was dead but the internal improvements program lingered on life support. Burlingame wrote: “When the regular session began on December 7, 1840, the House of Representatives, finally meeting for the first time in the new capitol, wrangled over the debt crisis. Lincoln managed, after much cajoling, to persuade his colleagues to raise the general land tax and to issue special bonds to cover the pending interest obligations. Lincoln’s ‘interest bonds’ scheme was criticized as ‘a mere gull trap, set for the purpose of catching money holders & sharpers.’ The tax hike, however, yielded insufficient revenue to solve the problem, and in July 1841 the state defaulted on its interest payments, causing the price of Illinois bonds to plunge. A Democratic state senator complained that the ‘very men who voted for the rail Road system, men who indebted the State millions, are afraid to vote one cent of taxes on their constituents to sustain the tottering credit of the State. In 1842, the state took in revenues of less than $100,000, while interest payments approached $800,000.”91

Michael Burlingame noted that in the 1840-1841 session, Democrat John McClernand, a future congressman and Union Army general, and Lincoln held an especially heated debate over the question of whether the state bank should be the fiscal agent for Illinois. Lincoln, with asperity, accused Democrats of underhanded dealing. He declared that there was ‘a manifest disposition on the part of some of the Van Buren men to prop up the bank, and it is perfectly apparent that the party are prepared to detach a fraction of themselves to go with the Whigs in sustaining the Bank – their usual policy – and then throw the odium of Suspension upon the Whigs.’ Lincoln ‘said that he was tired of this business. If there was to be this continual warfare against the Institutions of the State, the sooner it was brought to an end the better. If the great body of the [Democratic] party would act upon conservative principles, he was willing to go with them, but this scheme of detaching a fragment from their party to help the Whigs pass a measure and then turn around and kick and cuff us for it, he has seen practiced long enough.’ Lincoln’s attempt to protect the interests of the bank proved futile, for it was compelled to shut its doors the following year.” 92

In 1842, bank issues came to a head in Illinois. Lincoln biographer Ronald C. White, Jr., wrote: “In the aftermath of the financial panic of 1837, Congress passed the Bankruptcy Act on February 1, 1842, the first such act in forty years. Logan and Lincoln pled more than seventy cases, representing both creditors and debtors but primarily arguing for relief for debtors, before the act was repealed thirteen months later.” White wrote: “Early in 1842, the State bank of Illinois had been forced to close. In August, the governor, treasurer, and auditor ordered county tax collectors not to accept the state’s own paper notes for payment of taxes and school debts. Only gold and silver would be accepted. Citizens, however, had almost no gold or silver.” 93 The specie and liquidity problems of the Panic of 1837 continued.

Financial politics led to a dramatic and personal confrontation for now private citizen Lincoln. In August 1842, State Auditor James Shields issued the following communication regarding the ability of taxpayers to use paper money to pay their taxes: “The Governor, Auditor, and Treasurer have prohibited the reception of the bills of the State Bank of Illinois and branches in the payment of revenue of 1842, and of debts of the school fund….The object of this measure is to suspend the collection of the revenue for the current year, which would otherwise commence in September next, until the next Legislature may have an opportunity of acting on the subject….The restoration of a sound currency which is so essentially needed at present in this State can only be effected by the joint efforts of the Government and the people, and the first step toward the accomplishment of this object, is the rejection of depreciated paper by the State. It is folly to hope for a sound circulation while the Government is patronizing a worthless one. To prevent his change from operating oppressively the Legislature will have it in its power, by the reduction of salaries and the curtailment of all expenses not absolutely indispensable for the existence of Government, to make a material reduction in taxes for the next two years.” 94 Whigs took advantage of the unpopularity of Shields’ position to vilify him. A series of satirical letters appeared in the Sangamon Journal. One of these letters was written by Lincoln. Shields demanded an apology and retraction – supposing that Lincoln had also written another letter that was apparently co-authored by Mary Todd. A long series of negotiations followed that resulted in a challenge to a duel and a last minute negotiation that averted the scheduled event on September 22, 1842. It was one of the most embarrassing incidents in Lincoln’s life – and brought Lincoln’s association with state banking issues to a fitting close.

However, after the Shields affair abated, there is little record that Lincoln actively campaigned while he made his usual fall tour of the Eighth Judicial Circuit. Instead, a letter to longtime friend James Shields suggests that he was thinking about marriage. On Friday, November 4, he and Mary Todd were married. The election followed on November 8. Lincoln temporarily left behind the legislature, banking, and politics. He had already concluded his fourth and final legislative term. Historian Robert W. Johannsen noted: “The state’s economic condition was hotly debated in the 1842 election. Both parties rejected repudiation, but each sought to fasten the blame for the crisis on other. The internal improvement system, so enthusiastically supported five years before, became a stigma. The Democrats increased their attacks on the state banks, especially the ‘unholy alliance’ of bank and state, and in their election pronouncements they declared against a national bank and in favor of the independent treasury system. When Thomas Ford was elected to the governorship, it was clear that the new administration would be forced to deal first with the state banking situation. Sentiment in favor of putting the banks into liquidation was overwhelming. A minority of the Democrats, led by secretary of state Lyman Trumbull, supported the outright repeal of the bank charters.”95

By this time, Stephen A. Douglas had rapidly climbed the political ladder – briefly to Illinois secretary of state and then to judge of the State Supreme Court, and soon to be a member of Congress. Douglas biographer Robert W. Johannsen continued: “Governor Ford, who favored a compromise by which the banks and the state would dissolve their partnership, proposed a bill which would legalize suspension for another six months and allow the banks to surrender their state bonds in return for the bank stock which the state held. Ford’s bill was shown to McClernand, chairman of the house finance committee, who immediately called a meeting of his committee. Governor Ford, James Shields, and Judge Douglas were invited to attend. All the members of the committee agreed to Ford’s plan except one, ‘and he was soon argued out of his objections by Judge Douglass.’ With the committee’s endorsement, the bill passed the legislature by a large margin. Trumbull’s opposition to the compromise cost him his job as secretary of state and brought him into conflict with Douglas. Speaking before the ‘lobby,’ the young judge denounced Trumbull as a dangerous and radical repudiator. Ford’s bill, after its passage by the legislature, went to the council of revision, where Douglas, sitting on the council by virtue of his judicial position, promptly and inexplicably voted against the very legislation he had helped to pass. He was the only member to cast a negative vote, ‘for no other reason,’ according to one biographer, ‘than that when called upon to review it judicially, he fancied it still smattered of repudiation by the state.’”96

Having cut their political teeth on the banking issues in the aftermath of the Panic of 1837, Lincoln, Douglas, Shields and Trumbull would all continue to rise in Illinois politics. Douglas, Shields, and Trumbull would all serve as United States senators. Lincoln twice would be defeated in his effort to win that same post, but he would twice be elected president of the United States – a position in which he would have to deal with an even more difficult set of economic problems.


 
For Further Reference

  1. Roger G. Kennedy, Mr. Jefferson’s Lost Cause: Land, Farmers, Slavery, and the Louisiana Purchase, p. 166.
  2. H. W. Brands, Andrew Jackson: A Life and Times, p. 534.
  3. Paul Finkelman and Donald R. Kennon, editors, Congress and the Emergence of Sectionalism from the Missouri Compromise to the Age of Jackson, p. 195 (Jenny B. Wahl, “He Broke the Bank, but Did Andrew Jackson also Father the Fed?”).
  4. Ted Widmer, Martin Van Buren, p. 89.
  5. Arthur M. Schlesinger, Jr., The Age of Jackson, p. 224.
  6. Peter L. Rousseau, “Jacksonian Monetary Policy, Specie Flows and the Panic of 1837,” The Journal of Economic History, June 2002, p. 457.
  7. John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, pp. 129-130.
  8. Paul Finkelman and Donald R. Kennon, editors, Congress and the Emergence of Sectionalism: from the Missouri Compromise to the Age of Jackson, p. 195 (Jenny B. Wahl, He Broke the Bank, But Did Andrew Jackson Father the Fed?”).
  9. Theodore Calvin Pease, The Frontier State, 1818-1848, p. 243.
  10. Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 442.
  11. Paul Finkelman and Donald R. Kennon, editors, Congress and the Emergence of Sectionalism from the Missouri Compromise to the Age of Jackson, p. 137 (William W. Freehling, “Andrew Jackson, Great President (?)”).
  12. Paul Studenski and Herman Edward Krooss. Financial History of the United States, p. 110.
  13. Harry L. Watson, Andrew Jackson vs. Henry clay: Democracy and Development in Antebellum America, p. 79.
  14. Arthur M. Schlesinger, Jr., The Age of Jackson, p. 226.
  15. Sean Wilentz, The Rise of American Democracy, p. 456.
  16. Arthur M. Schlesinger, Jr., The Age of Jackson, pp. 218-219.
  17. John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 130.
  18. Ted Widmer, Martin Van Buren, p. 100.
  19. Paul Finkelman and Donald R. Kennon, editors, Congress and the Emergence of Sectionalism from the Missouri Compromise to the Age of Jackson, p. 195 (Jenny B. Wahl, “He Broke the Bank, but Did Andrew Jackson also Father the Fed?”).
  20. Edward M. Shepard, Life of Martin Van Buren, pp. 316-317.
  21. Wyman Boardman, America and the Jacksonian Era, 1825-1850, p. 29.
  22. Ted Widmer, Martin Van Buren, pp. 102-103.
  23. Daniel Walker Howe, What Hath God Wrought, pp. 506-507.
  24. John M. McFaul, The Politics of Jacksonian Finance, p. 191.
  25. Arthur M. Schlesinger, Jr., The Age of Jackson, pp. 239-240.
  26. Daniel Walker Howe, What Hath God Wrought, p. 502.
  27. John Steele Gordon, An Empire of Wealth: The Epic History of American Economic Power, p. 133.
  28. Donald B. Cole, The Presidency of Andrew Jackson, p. 235.
  29. Fred Kaplan, Lincoln: The Biography of a Writer, p. 92.
  30. Paul Finkelman and Donald R. Kennon, editors, Congress and the Emergence of Sectionalism from the Missouri Compromise to the Age of Jackson, p. 196 (Jenny B. Wahl, “He Broke the Bank, but Did Andrew Jackson also Father the Fed?”).
  31. Edward M. Shepard, Life of Martin Van Buren, p. 294.
  32. Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 453.
  33. Rodney O. Davis, editor, Thomas Ford, A History of Illinois, p. 123. Ford served as governor of Illinois from 1842 to 1846.
  34. Jane Flaherty, The Revenue Imperative, pp. 52-53.
  35. Andy Van Meter, Always My Friend, p. 50.
  36. Theodore Calvin Pease, The Frontier State, 1818-1848, p. 244.
  37. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 137.
  38. Charles Manfred Thompson, The Illinois Whigs Before 1846. pp. 58-59.
  39. Daniel Walker Howe, What Hath God Wrought, pp. 503-504.
  40. Theodore Calvin Pease, The Frontier State, 1818-1848, p. 236.
  41. Andy Van Meter, Always My Friend, p. 45.
  42. Michael Les Benedict, “Lincoln and Constitutional Politics,” Marquette Law Review, p.1336, Volume 93, No. 4, Summer 2010.
  43. Roy P. Basler, editor, Collected Works of Abraham Lincoln (CWAL), Volume I, pp. 62-64 (Speech in the Illinois Legislature Concerning the State Bank January 11, 1837).
  44. Paul Simon, Lincoln’s Preparation for Greatness, pp. 299-230.
  45. Frank Coburn, “Abraham Lincoln and the Right to Rise: Rewriting History,” Lincoln Herald, Fall 2007, p. 156.
  46. Paul Simon, Lincoln’s Preparation for Greatness, p. 113.
  47. Rodney O. Davis, editor, Thomas Ford, A History of Illinois, p. 118. A detailed and highly critical analysis of early banking in Illinois can be found in Ford’s history.
  48. Daniel Walker Howe, What Hath God Wrought, p. 505.
  49. Edward Morse Shepard, Life of Martin Van Buren, pp. 370-371.
  50. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 143.
  51. Paul Simon, Lincoln’s Preparation for Greatness, p. 156.
  52. Albert Beveridge, Abraham Lincoln, Volume I, p. 242.
  53. Paul Simon, Lincoln’s Preparation for Greatness, p. 157.
  54. See Richard Lawrence Miller, Lincoln and His World, Prairie Politician 1834-1842, pp. 346-349.
  55. Albert Beveridge, Abraham Lincoln, Volume I, p. 256.
  56. Albert Beveridge, Abraham Lincoln, Volume I, p. 257.
  57. Richard Lawrence Miller, Lincoln and His World, Prairie Politician 1834-1842, p. 350 (Sangamo Journal, December 20, 1839).
  58. CWAL, Volume I, pp. 200-201 (Remarks in Illinois Legislature Concerning an Act to Modify the System of Internal Improvements, January 30, 1840).
  59. CWAL, Volume I, p. 159 (Letter from Abraham Lincoln to John Todd Stuart, December 23, 1839).
  60. CWAL, Volume I, p. 159 (Letter from Abraham Lincoln to John Todd Stuart, January 20, 1840).
  61. Paul Simon, Lincoln’s Preparation for Greatness, pp. 188-189.
  62. Paul Simon, Lincoln’s Preparation for Greatness, p. 191.
  63. George W. Smith, When Lincoln Came to Egypt, p. 51.
  64. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 150.
  65. Fred Kaplan, Lincoln: The Biography of a Writer, p. 11.
  66. Bray Hammond, Banks and Politics in America: From the Revolution to the Civil War, p. 490.
  67. CWAL, Volume I, pp. 160-161 (Speech on the Sub-treasury, December [26], 1839).
  68. CWAL, Volume I, p. 163 (Speech on the Sub-treasury, December [26], 1839).
  69. CWAL, Volume I, pp. 163-64 (Speech on the Sub-Treasury, December [26], 1839).
  70. CWAL, Volume I, pp. 165-66. (Speech on the Sub-treasury, December [26], 1839).
  71. CWAL, Volume I, p. 170 (Speech on the Sub-treasury, December [26], 1839).
  72. Michael Burlingame, Abraham Lincoln: A Life, Volume I, pp. 151-152.
  73. Gabor Boritt, Lincoln and the Economics of the American Dream, p. 65.
  74. Gabor Boritt, Lincoln and the Economics of the American Dream, pp. 65-66.
  75. William Lee Miller, “He Will Be Good – But God Knows When,” Lincoln Lore, Fall 2003, pp. 7-8.
  76. Rufus Rockwell Wilson, editor, Intimate Memories of Lincoln, p. 20 (Joshua F. Speed).
  77. Paul Simon, Lincoln’s Preparation for Greatness, p. 192 (Quincy Whig, January 4, 1840).
  78. Richard Lawrence Miller, Lincoln and His World, Prairie Politician 1834-1842, p. 343-344 (Illinois State Register, February 8 and 14 1840).
  79. Paul Simon, Lincoln’s Preparation for Greatness, p. 192 (Illinois State Register, February 8, 1840).
  80. John M. Palmer, Bench and Bar of Illinois, Volume II, p. 752.
  81. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 150.
  82. Douglas L. Wilson, Honor’s Voice, pp. 200-201, 210.
  83. CWAL, Volume I, p. 502 (Speech in the U.S. House of Representatives on the Presidential Question, July 27, 1848).
  84. James Roger Sharp, American Politics in the Early Republic: The New Nation in Crisis, p. 62.
  85. Daniel Walker Howe, The Political Culture of American Whigs, p. 265.
  86. Daniel Walker Howe, What Hath God Wrought, p. 507.
  87. Charles Manfred Thompson, The Illinois Whigs before 1846, pp. 82-83.
  88. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 162.
  89. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 162.
  90. Paul Simon, Lincoln’s Preparation for Greatness, pp. 223-231.
  91. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 163.
  92. Michael Burlingame, Abraham Lincoln: A Life, Volume I, p. 165.
  93. Ronald C. White, Jr., A. Lincoln: A Biography, pp. 127, 113.
  94. Jason Silverman, “The Greatest Duel that Never Was: Abraham Lincoln, James Shields, and Political Lessons Learned,” The Lincoln Herald, Fall 2009, pp. 181-182 (Letter by James Shields, August 20, 1842). See also J. P. Sean Callan, Courage and Country: James Shields, More than Irish Luck, pp. 266-267.
  95. Robert W. Johannsen, Stephen A. Douglas, p. 115.
  96. Robert W. Johannsen, Stephen A. Douglas, p. 115.

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