Interposition: Part Eight: Federalism, Finance and The War of 1812

When tensions with England finally began to degenerate into violent altercations, first on the western frontier in such places as Tippecanoe and later along the Great Lakes, the Madison administration decided the time had come to vindicate America’s claims of offended sovereignty. Unsurprisingly, these claims also happened to coincide with popular desires to expand into the Old Northwest and Canada. Those particular voices were especially powerful in the mid Atlantic and southern states. Two of the leading voices of those regions, Henry Clay and J.C. Calhoun were united at this point in their careers, generally supporting more vigorous forms of nationalism at home and abroad.

But Mr. Madison had let the charter of the first Bank of the United States expire in 1811, and when he turned to finance his war he had of necessity to turn to state banking institutions. These entities were comprised of various private and state banks who were generally quite willing to buy American treasury securities. There was one region, however, that was not quite so willing: the New England states and the banks that operated under their approval.

Already rocked by years of embargo, New Englanders were poised to suffer even more outrages in open war. Popular sentiment ran high against the conflict, and when the treasury presented its notes for sale to New England banks they received a cool reception. The vast majority of such paper was consequently sold to the south and west. Indeed, needing to purchase supplies in the north, the national government found this a particularly galling impediment. To remedy the situation, Madison’s administration not only borrowed from existing banks in the mid-Atlantic states, it actively promoted new ones, even over the existing laws of those states that had tended to restrict private unchartered banks.

From 1811 to 1815 the number of banks more than doubled, from 117 to 247, 35 of which were unincorporated. The result was a massive increase in circulating paper money–nearly three times the amount in circulation at the start of the war. Treasury certificates were used as, and encouraged to be considered backing for notes in the same fashion as gold or silver. But one difficulty was not anticipated. When the District of Columbia was burned by British marines on August 24, 1814, it quickly became apparent that certificates on the U.S. government might not be such a sound investment.

Runs the banks that very month demonstrated the insolvency of most of the new institutions, and in opposition to various state laws, the national government encouraged the mid-Atlantic and southern states to ignore or restrict bankruptcy proceedings against their offending banks, but allowed those very institutions to pursue such proceedings against their own debtors. All this was done, no less, while they continued to make new loans, adding yet even more to the already general inflation.

Only one region did not experience suspension of payments or bank runs: New England. For once in over six years, the New England states could boast a small economic indicator in their favor. In Federalist 10, Madison had argued that federalism might serve to insulate local evils from becoming universal, national ones. In this case, the evils of expansionism had been halted at the gates of Massachusetts, and New England’s representatives left little doubt about their sentiments in this regard.

In words that would later come back to him, a young Daniel Webster, then a representative of New Hampshire, declared in Congress on December 9, 1814, that the “operation of measures unconstitutional and illegal ought to be prevented by a resort to other measures which are both constitutional and legal. It will be the solemn duty of the State Governments to protect their own authority over their own militia, and to interpose between their citizens and arbitrary power. These are among the objects for which the State Governments exist, and their highest obligations bind them to the preservation of their own rights and the liberties of their people.”

Would it be too much to suspect that Webster both knew and approved of the New York statement of ratification? But even if he hadn’t, and that seems dubious, the words demonstrate just how deeply the sense of the states as checks to central power was engrained in the American mind. At this point in time, Webster was no Jeffersonian. He was a New England Federalist, and the home states were listening. On to Hartford.

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