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Browns, and The Panic of 1837 J. R. Killick, Athens, August, 2011
Brown’s Bail out by Bof. E, 1837. • Browns in trouble - Spring 1837. Panic in US. US debtors unable to remit in time. • £ 2 m bail-out = $10 m. Underlying strength. Too big to fail. Threat to GB exporters. • Brown’s cotton imports - 1838 = $7 m. • US exports to GB - 1838 = $52 m. • US Federal Govt Receipts - 1838 = $26 m. • Why did Bof. E Help? - Moral Hazard etc.
Crisis of 1837 -Basic Chronology 1835 -6: US Boom. GB exports + Credits to US. Mid 1836: President Jackson’s ‘Specie Circular’. Fall 1836 -: Bof. E pressure on ‘American Houses’. . Jan 1837: Growing pressure in US. March 1837: US panic. US payments to GB falter. May 6 th-29 th: Packet Roscoe – US payments stop. June 1 st: Brown’s appeal to Bof. E. June 2 nd: ‘ 3 Ws fail. Panic in Liverpool. June 2 nd-22 nd: Bof. E Negotiation. Guarantee fund. June 22 nd: Bof. E will carry Browns until Dec 31 st. .
Bof. E Aid to Merchants, 1836 -37 Nov: Irish Banks – Aid to: Dec: Northern & Central Bank - Failed. Jan: Esdailes - £ 150 k – Wound up. Mar: Wiggins, Wildes, Wilson - £ 200 k each. June: ‘ 3 Ws’ failed – Creditors helped. June: Browns - £ 2 m – Saved -Re-paid June: Morrison & Cryder – Saved - Repaid June: Lizardi – Saved – Repaid. Browns the largest, and most threatening.
Can Anything More be Said? 1. Lehman et al collapse: Restudy timely – Browns’ part in 1836 -41 events. 2008 parallel. 2. Existing Studies – Good quality Centenaries. 3. J. C. Brown, A Century…(1909); Aytoun Ellis, Brown Shipley, (1960); John Kouwenhoven. Brown Brothers Harriman. (1968). 4. Edwin Perkins, House of Brown (1975) – deliberately adds nothing – enough said. 5. But some possible chinks to exploit. – unused Brown records. Other merchant records.
Brown Sources and Bibliography NYHS: BBH Hist file. 1837 letters – WB, Shipley. Bowen - source for this talk – only part used. Lof. C: Browns, Balto - Out letters + Ledgers. Brown-Shipley: Wm B Letter books – Politics 1846 -. NYPL: Brown Brothers ledgers – but few letters. Liverpool PL: William Brown Library: Very limited. Other sources: Barings, Bates, Langton, Bof. E. My interest: Anglo-Amn merchants – Trade, Shipping, Finance. Browns and Copes.
Synopsis – Browns & Panic of 1837. • • • Browns’ background and Operations. Traditional Explanations: Jackson, BUS, Bof. E. Macro Interpretations – North, Temin. Browns’ and the 1835 -6 Boom. Browns’ and the Crisis of May-June 1837 The Negotiation between Browns and the Bof. E. Browns’ in the Recovery, 1837 -39. The Renewed Crisis and Depression of 1839 -44. The Lessons Browns drew from the Crisis.
Alexander Brown and Sons (1800 -) Alexander (1764 -1834) – Ballymena to Baltimore, 1800. Four long lived sons: 1. William to Liverpool, 1810 2. George remained in Balto. 3. John to Philadelphia, 1818. 4. James to New York, 1825. Archetypal linked merchant network - Ulster Presbyterians – Scots Irish.
Liverpool Importers, 1827/30
Traditional Story - Jackson-v-Biddle. • Andrew Jackson, 1767 -1844. • 7 th Pres of USA, 1829 -1837. • Military Hero. New Orleans. • Jacksonian Democracy – Populism – Disliked Banks. • ------------------ • Nicholas Biddle, 1768 -1844. • President 2 nd BUS. • Philadelphia. Merchant. Aristocrat. Europe. • Federalist - Whig. • Ist Gt US Central Banker.
Second BUS, 1816 -36 - Policies. • 1 st BUS: 1791 -1811 Hamilton. Copy Bof. E. • 2 nd BUS: Federal Charter, 1816 -36. • Branches in main cities. • NB-President -1820 -40. • US Taxes. Deposits. • Currency Stability agt £. • Control State Banks – Centre -v- Periphery.
The Bank War, 1832 -41 1832: Election- BUS 1834: NB squeeze. 1835: Govt deposits to Pet Banks. 1836: BUS re-charter. 1836: Frontier boom. Specie Circular. 1836 -7: Bof. E squeeze - contraction. 1837: Panic. 1838: Recovery. 1839: 2 nd Crisis 1840 -4: Hard Times.
Macro-Economic Interpretations, 1815 -60
Douglass North – US Cotton trade. 1. Central Role of Cotton in US Growth. 2. South - Cotton. West - Food East - Services.
Peter Temin, GB Demand Bof. E • Critiques Standard AJ -v- NB Story • Critiques North • GB Demand – Harvest, 1836 -40 • Bof. E Policy, 1837 • Role of Credits and Merchants • Deflation rather than Depression.
Merchants’ Role in Atlantic System, 1830 s Leading Players: • Liverpool Mts • Country Banks. • GB Manufacturers. • Et Coast Mts. • Southern Factors. Trade + Credit Flows • Manufactureds. • Raw Cotton. London – Liverpool – East Coast – South. (From - Chapman, Merchant Banking)
Brown’s Imports, 1820 -40
Leading New Orleans Factors, 1831 -36
Browns’ Advances to Factors, 1834 -7 1834 – JAB – Phila – $4 -500 k advances to Reynolds-Byrne (Later Herman Briggs – 1 st large failure, March 18 th, 1837) ‘The cotton trade is no doubt pleasant – but competition for it is so great people are willing to go to any lengths to get consignments… Some houses will advance the whole cost. . RB drew on JAB for more than the cost in New Orleans at time of shipment… as far as going on as last year, we might as well be in partnership with them’ - GB – WB, August 1834.
GB Manufacturers Similar to Cotton Browns organised several parties: 1. British Manufacturers – Credits to. . 2. American Merchant Purchasers. . 3. Packet Shipping lines who shipped goods- Cope Line of Philadelphia – my own special interest. Browns acted as Liverpool agents for. 4. GB Banks – Browns discounted bills at… Wide range of goods - Irish linen, Yorkshire woollens, Sheffield Steel, Birmingham hardware.
Bof. E Policy, and Brown’s Reaction, 1836 May-Aug: Growing Bof. E concern about US boom, gold outflows, and the ‘American Houses’ - Barings, Browns, the ’ 3 Ws’. etc. Aug 24 th: Harsh new policy – to refuse bills… Joshua Bates – Barings – Comment. ‘ Obnoxious edict’. Aug 30 th: Liverpool delegation to Bof. E – Led by WB? Wrote Bof. E - Sept 7 th. Bof. E reduced pressure. Sept-Dec: Bof. E monitored American Houses. Would discount trade, but not finance bills. American Houses retrenchment – Baring’s US Agent T. W. Ward – pressed US clients and debtors hard.
Browns’ Reactions, Late 1836: Hubris. 1. Baltimore branch letters to Liverpool (in Lof. C) reflect Liverpool concerns – but still confident. 2. Aug : Your heavy acceptances for fall goods – will remit from Balto, Phila and NY asap. 3. Nov: Have seen your private letters, and understand your anxiety – am remitting fast. 4. Jan-Feb: Confident. ‘From the magnitude of our prosperity we can now sustain very heavy losses. $634 k profit last year. Worth $6 m. Offering credits to safe merchants.
Beginnings of US Panic, Spring 1837 1. Bof. E – gold reserves – foreign exchanges continued pressure on US houses. 2. High interest rates - Fall in price of cotton – below level of advances – transferred to US. 3. Failures in cotton trade. Herman Briggs - New Orleans (March 18 th), and Josephs, New York, (March 21 st), and in NY Dry Goods import and distribution trade. 4. US government measures - Specie Circular, Distribution of Surplus etc. Too small to hurt ? ?
Browns and Herman Briggs failure. Mar 13 th: Dear Wm: James + John are here. Encl Story’s letters (2 nd, 3 rd, 4 th March from New Orleans about Herman Briggs). Immediately wrote HB that due to English money market, and probability of great fall in cotton prices, they should not consign to us. Will leave them with no apology for drawing. We expect if they suspend payment, they will be able to wind up and pay all. Mar 15 th: GB-Story: If HB actually have to suspend, we would expect Josephs and Jackson Riddle to follow…
Browns’ Reaction to US Panic, Spring 37 April 18 th: GB-WB – Some houses here would be pleased if you declined accepting. . Would prevent goods coming here which can’t be paid for. May 4 th: GB-Story – When failures on this side are known in England, doubtful what action Bof. E will take with American Houses – May have to carry them through – but if not there will be huge damage to merchant community. May 6 th: Packet Ship Roscoe left NY with US Panic news. Arrived Liverpool, May 29 th.
Panic Arrives in GB, March-May 1837 Winter 1836 -37: Spasmodic Failures in GB. Feb March: The ‘ 3 Ws’ apply to Bof. E for help – Given £ 200 K each – Guarantees. Bof. E Aid. March 6 th: ‘Had it not been for the firmness of Palmer and the Deputy Governor, the Governor – Pattison - would have bought down every American House…’ – Glynn-Langton. April: Pause. Pressure continued. Bank vacillated May 24 th: Browns short. Shipley sent to London. May 29 th: ‘Roscoe’ arrived with worst US news
WB’s Reaction – Shocked. May 29 th: WB-Shipley – The packet is in. . Nothing can save us…Since Feb 8 th I have felt I was going to execution. . . Make no hasty decisions. May 29 th: Bowen-Shipley - ‘WB thinks nothing left for us but Gazette. . Fortunately has not been out of the office since Roscoe arrived… has seen no -one but Langton. I was by while he was here and no mischief done. Proposed to call on friends – suggested it would be better to wait until he could see you, or hear from you…’
Decision to Appeal to Bof. E. May 29 th. May 30 th: Bowen-JS: WB calmer now – thinks Bof. E may sustain us as lesser evil. May 31 st: JS-WB – Came to London to show Denisons (bankers) how we could meet June engagements - Roscoe news ended that. May 31 st-June 1 st: WB-JS- If Bof. E will help ‘ 3 Ws’ – then they must help us. June 1 st: JS-WB: Bof. E will decide in hours – I will be sent for. 12 noon. Governor seeing Ld Melbourne. Now 4 pm – no news. Now 6. 30 pm – Board still sitting. . Irksome suspense…
Browns Appeal to Bof. E. June 1 st. • By the arrival of the last packet, we found our remittances from the US suddenly cut off… • Our capital £ 1. 35 m in December. Our engagements - £ 1. 37 m. (i. e about $6 m) • Protested Bills from US to date - £ 0. 47 m. And due in June - £ 0. 37 m. Therefore need about £ 0. 8 m to carry us through. • Denisons heading Guarantee List with £ 50 k. • Cotton in Liverpool, or on the way - £ 150 k
Implied threat of Failure, June 1 st ‘… We regret necessity of pressing this on you. . But our payments must be met tomorrow… (accounts enclosed). . as you will see two-thirds of all our engagements arise out of the export of British manufactures… you can readily judge what disastrous consequences would follow our stoppage at this time, and which we painfully apprehend would be more painfully felt than any other house in England…We hope you will support us’
Bof. E Will Support Browns to June 8 th. • No reasons in Bof. E Minutes – Only a respite. • Bof. E ditched ‘ 3 Ws’. Carr Glynn reported to Langton. . ‘the proposal (for aid) was lost by a bare majority and against the Governor and his Deputy”, and caused much commotion. • Bof. E aided Morrison and Cryder, and Lizardis, the other American houses, the same day. • Probably convinced Browns case was different. They were stronger, and risky to refuse help.
Browns’ Survival in Balance - Factors 1. Momentum of Panic in US and Liverpool… as more firms failed – but fresh resources arrived. 2. Determination of Partners – WB, JS, Bowen 3. Debate in Bof. E – Hard liners -v- Pragmatists. 4. Support from their Bankers, and other allies. 5. Ability to raise assets – in GB, and from US 6. Guarantee List – Vital to demonstrate Support. 7. Bof. E fear of a wider panic if Browns failed. 8. News from the US – as fresh Packet ships arrived – often delayed by easterlies.
William Brown, 1784 -1864. Character. Age 53 in 1837 – Health? Critical doubt on Guarantee List - Ready to give up. Shipley Led negotiation. Masterful Like Father? Portraits. Writing. Observers- Hawthorne. Brown in Commons inaudible. Hansard. Provincial background.
Joseph Shipley, 1795 -1867 • Led negotiations in London. • Age 42. Portrait is c. 1825. • Wilmington, Del. Philadelphia. • Jr partner, 1826. Full partner, Brown-Shipley, 1839. • ‘It has only been in the last ten days that I have begun seriously to apprehend the possible loss of nearly all the earnings of eleven laborious anxious years’, JS-Cousin, May 14 th.
William Ezra Bowen, 1797 -1861 • Philadelphia Quaker. • 1831 - Agent in Manchester – ordered textile exports. • May-June 1837: Supported WB in Liverpool. Letters. • June: Organised Guarantee list in Manchester, Birmingham, Kidderminster etc. • 1837 - Partner in Liverpool.
Bof. E Divisions over American Houses. Shipley reported Governor(Curtis) + Deputy (Reid) were always very helpful but Ex-Governor Pattison was difficult. Deeply held conflicting views about Bof. E Role. Currency School -v- Bullion School. Guarantee List Promises were conditional on Bof. E promise that Bof. E would sustain Browns through 1837 - Pattison critical – but defeated. . Pattison responsible for restriction on American Houses, and decision not to assist ‘ 3 Ws’
Denisons headed List - £ 100 k GB-WB, Feb 7 th. ‘I should regret… you doing anything with any other house than Denisons. You commenced with them when our capital was small, and now we…are second to (none in US trade), and when they ought to have unlimited confidence, it would be a hardship for them to throw away an account… so profitable to them without a particle of risk although at times you may have to lean pretty heavily on them, and by doing so you promote their interest as much as ours…’
Bank of Liverpool, Hodgson, Langton • Bank of Liverpool, 1831. • 1 st Liverpool Joint Stock Bank. Wm Brown, Chairman, 1831 -35. • Strong support at Bof. E. • Supported Guarantee Fund – but marginally – until Bof. E position clear. Feared Director votes. Gvr of Bof. E comment. Joseph Langton. Manager, Bof. L Helped organise Guarantee Fund Adam Hodgson, Chairman, Bof. L. Rathbone Hodgson. Quaker rivals of Browns.
American Allies -Van Wart and Peabody Henry. Van Wart. . (17841873). American. NY, Director of Birmingham Banking Co. Export Hardware to US. Helped organise Guarantee Fund in Birmingham. Delegation from Birmingham to Bof. E. Sister md. Washington Irving. George Peabody, 17951869). Merchant, Banker and Philanthropist. b. Mass, but estd in Baltimore with aid from Alex Brown, 1816 -37. Moved to GB 1837. Helped organise Guarantee Fund in Manchester. Negotiate with Bof. E. Antecedent of Morgans
Brown’s Assets Handed to Bank • Cotton arrivals – Shipments by Story (Nw. O), Adger et al. US debtors – New Orleans factors – but of course most could not arrive on time. • Protested Bills taken by Bof. E – at reduced value according to risk. • Stock – BUS; RR, • BUS acted for Bof. E in US. • Brandon – WBs estate, Carriage etc. stopped.
Composition of Guarantee Fund Relatives – Gihons, Hargreaves, Currell. Firms that would lose if Browns fell. Liverpool Merchants – Banks. Liverpool names. Manchester – Bank. Textiles. Leeds – Gott. Birmingham – Banks – Hardware. Not small men. Ulster – Banks, Linen manufacturers. London Merchants - Contrast with Funds for 3 Ws – London Banks – Bates polite, but cold. Surprise – Pattison – ex-Gvr of Bof. E - Opponent.
Weekly Bof. E Meetings - Critical Stages June 2 nd: Decision to carry Browns until June 8 th, but to drop ‘ 3 Ws’. June 8 th: Decision to carry Browns until June 15 th to allow time for them to assemble resources June 15 th: Decision to carry Browns through until Dec 31 st provided they could complete their Guarantee List. ‘ 3 Ws creditors rescued. June 22 nd. Agreed Guarantee List satisfactory. Browns could initiate moderate new business.
WB-JS: Pessimism, June 2 nd’ • Our duty to go on… to avoid public hurt, but could never forgive ourselves if our bankers and friends committed themselves, and then we had to stop… • Suspension would be a great shock – but our estate would probably be safe, and we could reenter a moderate business… • Langton determined to raise a Guarantee Fund – but will only be available if Bof. E will carry us through, and if Denisons guarantee us. If we lose how could they help us after?
JS working hard, but distressed by WB. June 2 nd. ‘ 3 Ws have gone – but Bof. E thinks our case different from the others - We must now arrange a Guarantee Fund in Liverpool and Manchester. (Denisons) say it would be madness to stop now… June 3 rd: I hope the failure of the 3 Ws will not stop you trying to get up Guarantee Funds. Denisons very anxious to help – will risk their £ 50 k or more… June 5 th – Your letters embarrass me greatly… You exaggerate our losses…. But must just continue up to 8 th unless your subsequent letters say otherwise.
Bowen-Shipley, 5 th June - Doubts. • Difficult to find guarantees here (Manchester) – those who would help can’t. No one will help unless sure it will be effectual. They doubt Bof. E’s good will. • If we stop, the distress here, and in other manufacturing districts, will be very much increased, and I fear for the consequences. • WB would have been ready to stop – but for damage to others - Circular and stone prepared… He has Langton near him…
Shipley-WB. June 7 th – Gloom. • Your letters leave me with poor hopes. After it was decided that the guarantees would only be given on condition of the Bank carrying us through, the renewals (were) less important. • My hope was that you might have got £ 150 k, and as we have about that here, that it might have done. I am to see the Governor at 9. 30 am. • Denisons do not agree with you that they would be covered in paying until the 10 th, and I doubt if we do not receive a guarantee list tomorrow, they will even pay tomorrow’s acceptances.
Bof. E Decision, June 8 th - Postponed June 8 th: Bof. E Minutes… Bof. E would sustain Browns until June 15 th. In return for securities, cotton etc. and Denison’s guarantee. To give time to produce satisfactory Guarantee List. June 8 th: Shipley left London for Liverpool by coach after Bof. E Meeting. To fire up partners. June 9 th-13 th: No letters. JS in Liverpool. June 13 th: Tuesday. JS returned to London. ? June 14 th: JS-WB – Reported hard day. Meetings with Governor, and Denisons.
John Kennard (Denisons)-JS, June 10 th ‘Pray do all you can to get up a guarantee list. On this… your fate rests. From. . conversations with the Governor, I am… convinced they want to carry you through on any thing deposited… that would justify them to their proprietors and the public… Your case is generally known, and all are waiting with breathless anxiety the event…. How deeply do I sympathise with you… God… only can avert the crisis we are fearing… I will look for a letter from you on Monday’ (June 12 th).
Bof. E Decision to Help, 15 th June, June 11 th: Good US news reached London – Suspension. Solvency of US firms. June 12 th: Glynn-Langton – All in Good spirits – News will determine Bof. E decision on Browns. June 13 th: Meeting of London merchants chaired by Alexander Baring – US firms can and will pay. June 14 th: WB forwarding assets - but still gloomy! June 15 th: Bof. E decision to support Browns to Dec 31 st Dec, up to £ 1. 95 m, and 3 W’s creditors.
Effect of Panic in GB and US, 1837 -38. • Collapse GB-US credit System. . • GB exports to US. Annual and Monthly effects. • GB industries and Regions. Unemployment? • Bof. E rescues and BUS policies reduced effects.
Browns - Rapid Recovery, 1837 -8 June 15 th: Bof. E permission to start new business… Competitors weakened by Crisis- High Profits. GB-Story (Nw. O): Oct 21 st 1837. More alarmed than necessary that Bof. E would not help WB. GB-WB: March 30 th, 1838. ‘(Last). . years business is really surprising on both sides and almost leads one to believe there is a mistake in the estimates. . I hope by the end of the year we will have made all our losses fully up, and stand as well as we did on 31 st December 1836’
Brown’s Imports, 1820 -40
Browns and BUS Cotton Purchases JB-WB: May 7 th, 1838. ‘I am quite sure that you are right to resist… We are…sure a combination would result as you point out, and as… in 1825, those who held were caught and the sellers got out with comparatively little loss. From the large interest the Bank and Barings will have in sustaining the market, they will, we think be compelled to hold or submit to a loss. . . We are sure you are right to keeping yourselves free, letting others act as they like…’
Was Bof. E Wise to Help Browns? 1837 -38: GB+US recovery. 1838: BUS cotton purchases. 1838: Liverpool prices rise. 1838: Recovery in US. 1838 -9: US State bond sales in GB. 1839: Cotton floods market. . 1839: New Bof. E squeeze. 1839: New crisis in US. 1841: BUS folds. 1841: States repudiate debts - Federal Govt refuses aid. 1842: Double dip depression. 1843 -6: States resume payments. Recovery. 1846 -: RR, Grain, Gold.
Decision to Help Browns: Easy Money. 1. T. W. Ward (Baring’s US Agent) complaint. 2. Browns’ problems really due to most exceptional circumstances – not insolvent. 4. Real danger of serious fall out from Browns’ collapse – especially if no help given to other American Houses. This partly averted. 5. But how critical? – What really needed was structural reforms – bank bailouts – easy money etc. Only a temporary palliative.
Structural Reasons for Depression. • Hiatus in Anglo-American Development: • British deceleration – 1820 -40. Overdependence on cotton textiles and North America. • US deceleration – Over-dependence on Cotton. • New politics, ventures and trade needed. • ------------------------------ • Long run Solutions and Recovery 1845 on: • Politics: GB Corn Laws, US Walker Tariffs, • Technology: Railroads, Telegraph. Steam-ships. • Trade: Redirection - GB to East. Opening of US West. US grain trade. Gold etc. • Commercial Organisation – Specialisation.
Commercial Organisation - Specialisation. • Finance – Trend to. . Less marketing of US cotton and GB manufactures. • JAB and GB retire. • WB into Parliament, 1846 – South Lancashire. • Shipley - chief manager in Liverpool, until he retired to US. • British Crisis of 1847. • Railroads, Ireland, Bof. E pressure. WB led Liverpool delegation to Govt for easy money. • WB emphasised firms’ core interests. • Opposed James (NY) schemes in RR, Steamers etc.
William Brown and Crisis of 1847 WB-JB, Nov 1846 -Oct 1847: ‘…We must have every penny we can unlocked from fixed property. . . (This year…but for luck), we could have been compelled to stop payment… (we need all our resources for)…our extensive bill business… it is advances on plantations that has ruined most of the old houses here. Our means as far as possible should always return to us at short intervals. I never would again make an advance to a planter no matter how rich until the produce was actually on the road for shipment…. ’
Browns’ Long run Success, 1840 -80. • Browns moved into gap left by BUS in 1840’s. • Leading US commercial credit and foreign exchange negotiator 1840 -1880. • Survived Civil War, and retirement and death of WB and James Brown in 1860 s. New partners. • Overshadowed by rise of Investment Bankers – Morgans et al from 1880 s-. • Brown Bros Harriman still on Wall St. Sale of Brown-Shipley to KBL in 1990.