Gotham_ A History of New York City to 1898 - Edwin G. Burrows [490]
The crisis of the railroads sped the disintegration of city manufacturing. Cutbacks in orders for iron and engines crippled foundries and machine shops, wounding even the giant Allaire works. Failed locomotive builders defaulted in turn on notes due metal dealers like Hendricks and Brothers. The economic storm flattened less industrialized operations as well: virtually all of New York’s major clothing firms foundered in 1837.
The ruin of merchants and manufacturers alike had been hastened by, and in turn exacerbated, a crisis of the financial system. To protect their reserves of specie—gold and silver coin—banks virtually ceased lending, turning away even the most respectable merchants. Leading brokerage houses were equally tightfisted. When the well-connected sugar merchant Moses Taylor applied to Brown Brothers, he was told they would not accommodate even “the U.S. Bank with J. J. Astor to back it as security.” Interest rates skyrocketed to 24 percent. “Money is exorbitantly dear,” wrote Hone in March. “The bloodsuckers are beginning to be alarmed, and keep their unholy treasures locked up.”
Worse, banks began calling in outstanding loans, pushing more merchants over the edge into default. In turn, businessmen, who feared the banks might not survive, rushed to convert their deposits and bank notes into precious metal.
So did the citizenry. The Loco Focos, who all along had been denouncing banks and paper money, called a mass meeting in City Hall Park on March 6. Over thirty thousand people turned out, more than had attended the February rally preceding the flour riot. The assemblage urged noteholders to cash in their banknotes, “and thus make these soulless corporate extortioners pay their debts to the people as promptly as they compel payment from the people.” In April, with the panic spreading, angry crowds of the “poor and laboring classes” (Hone noted) gathered at the banks, demanding the return of their deposits “in a most alarming manner.”
On May 3 milling crowds besieged the Dry Dock Savings Bank. Mayor Lawrence managed to convince them that their money was safe. But the next day, the president of the Merchants’ Bank was found dead—“Some say prussic acid,” Strong reported—and the bank runs began again. Captain Frederick Marryat, a noted English writer, arrived to find that “suspicion, fear, and misfortune have taken possession of the city” and that “the militia are under arms, as riots are expected.”
Early next morning, the Dry Dock stopped payment. A score more merchants promptly failed. Throughout the city, people began jamming toward bank tellers shouting “Pay! Pay!” By May 9 $652,000 in coin had been drained from Manhattan vaults. Then, on May 10, all twenty-three of Manhattan’s banks announced they would henceforth refuse to exchange specie for paper. An infuriated crowd boiled into Wall Street. But the city had summoned up the Twenty-seventh Regiment—“the monopoly aristocracy of New-York garrisoned their fortresses with arms and men,” as one Loco Foco put it—and the day passed with much tumult but no bloodshed.
“The volcano has burst and overwhelmed New York,” Hone told his diary, and the repercussions spread swiftly throughout the country. Within twenty-four hours, most banks in the Northeast had stopped gold and silver payments. More distant states followed suit as soon as the news from Wall Street reached them. In most places—and certainly New York—suspending specie payments was blatantly illegal, but metropolitan bankers prevailed on the Albany legislature to suspend the law. This saved them from bankruptcy and enabled them to continue doing business. Indeed, now freed from having to redeem their notes in specie, banks