Gotham_ A History of New York City to 1898 - Edwin G. Burrows [729]
Seeking a quick return to the gold standard, New York City’s bankers and merchants hailed a Johnson administration plan to make greenbacks “as good as gold” by withdrawing them from circulation and literally burning them up. Eventually, with scarcity, their value would swell to market equivalence with precious metal, and gold and paper could once again be made interconvertible.
Western farmers and businessmen loathed the idea. With their capital-starved region in the midst of a gigantic expansion, there was not enough currency in circulation as it was. They protested a policy that would drive them into deeper dependency on Wall Street. Entrepreneurs in the iron and steel industry—who had done quite well under wartime inflation—denounced this plot by “money lenders” to throttle “productive capital.” Eastern manufacturers agreed. They organized the American Industrial League (1867), installed Peter Cooper as its first president, and complained that contraction would choke the economy into depression.
Western fury at Wall Street was intensified by the perceived inequities of the banking system. Congress had authorized nationally chartered institutions to issue banknotes that could circulate as money but allocated this credit-creating right on a regional basis, giving by far the bulk of it to New York and New England. By 1866 the per capita circulation of banknotes in New York was $33.30; in the Midwest, $6.36; in Arkansas, fourteen cents. This too forced West and South to turn east to finance their own expansion.
The new national financial system had further exacerbated regional inequalities by creating a three-tiered pyramid of banks. At the bottom were “Country Banks,” required for safety’s sake to keep a portion of their capital in a bank located in one of seventeen “Reserve Cities.” These institutions, in turn, were mandated to keep half of their required reserves at a bank in the “Central Reserve City”—i.e., Manhattan. This generated additional outcries against “the money power” that was being “centralized in New York.”
Westerners were even more unhappy with the government’s solution to the bond problem. During the war, Washington had been forced to offer high rates of interest, payable in gold, to those who purchased bonds. By 1869 there were over $1.6 billion of these in circulation. The government now announced that it would pay off the principal in gold too, even though most bonds had been purchased with greenbacks worth fifty to sixty cents at best. This would give bondholders a tremendous windfall profit (akin to that received by New York speculators in the aftermath of the Revolutionary War). Westerners denounced the plan, noting that the great bulk of notes were held by wealthy individuals and financial institutions. One protest pamphlet depicted a sybaritic “Mr. Bond” sitting in his parlor, smoking imported Havanas, downing French champagne, and gloating over tax-free bonds that brought in 11 percent a year, while out west, a disabled union veteran groaned under the high taxes imposed to pay off the corpulent Mr. Bond.
In 1867 Western animosity crystallized around a “soft money” proposal to pay off the bonds in greenbacks, the same depreciated currency with which they had been purchased. “Hard money” forces—centered in New York City—went wild. Academic economists weighed in with treatises about the immutable laws of classical economics. Ministers like Henry Ward Beecher preached sermons on the sanctity of specie and the wickedness of paper money. (Beecher’s text: “Thou shalt not steal.”)
The money issue became central to the 1868 presidential campaign. The Democratic Party held its national convention in New York, the first in the city’s history. A bruising battle pitted