• United States acquired Western land from foreign powers
On October 27, 1795 Thomas Pinckney, the American Ambassador to the Court of Saint James, received his instructions from President Washington to initiate negotiations with Spanish Prime Minister Manuel de Godoy concerning American access to the Mississippi River and (finally) settling the border between the United States and Spanish Florida. Chastened by a series of political and military debacles (defeats by the Brits in Europe and the Caribbean), the Spanish were eating humble pie—it would be an advantageous moment for America to test just how much humility Spanish stomachs would suffer. Spain garrisoned numerous forts along the Mississippi on American soil and had conniptions every time a farmer from Kentucky or Tennessee floated down the river (100 miles of which was in Spanish territory) into New Orleans with his goods or wares. In the Treaty of San Lorenzo, Pinckney—in a series of brilliant cut and thrusts—obtained for the United States free navigation of the Mississippi, use of the port of New Orleans for storage and export, the settlement of the 31st parallel as the dividing line between Spanish Florida and the United States, and the (gradual) withdrawal of Spanish troops. Soon afterwards, having been forced to cry uncle by history’s ultimate arm-twister, Napoleon, Spain’s presence in North America was further reduced when King Carlos IV transferred the entirety of the Louisiana Territory (but not Florida) to Napoleon: in exchange, Carlos wanted a small Italian kingdom for his son-in-law (Napoleon gave up a kingdom, but hating Carlos’ son-in-law, he gave it to the son of the son-in-law instead).
In January, 1803, Napoleon learned that 25,000 out of the 30,000 French soldiers he had just dispatched to retake Saint-Domingue had been killed (mostly during a yellow fever epidemic). The appalling casualties and his immediate need for cash to finance his impending attack on Britain gave Napoleon the incentive to sell the Territory to the United States. To finance the acquisition, Congress –whose pockets were nowhere near deep enough—applied to the century’s twin banking titans, Hopes of Amsterdam and Barings Bank of London, for a loan. Ultimately, an arrangement was made that $11.5 million dollars of the $15 million Louisiana asking price (averaging to about four cents per acre) would be paid by the United States to Napoleon in Treasury bonds. These bonds became the very first U.S. securities to be floated within international markets. Agents of Hopes and Barings then offered to take those Treasury bonds off Napoleon’s hands— at 86.5% of their face value: Boney accepted the offer, received the cash he needed to his re-stock his arsenal, and washed his hands of North America. The United States was now the debtor of Hopes and Barings. Why did the bankers do this? Well, they made a killing by buying the Treasury bonds on the cheap off of the Little Corporal, and made another killing later on when they sold them at premium prices on the secondary market.
In 1801, at Thomas Jefferson’s first inaugural, the debt of the United States stood at $80 million; acquiring the Louisiana Territory had raised it by 19% to $95,200,000. Financing this debt gobbled 95% of the country’s annual revenue: the annual interest which needed to be paid to the debt’s bondholders was $675,000.
• Peace in Europe triggers an economic depression in America
While the Limeys and Frogs were doing all that fighting (with large percentages of their able-bodied men serving in their respective armies and navies), American markets experienced a Renaissance as the belligerent powers were reliant upon American agricultural and industrial products (such as textiles, wheat, cotton, and tobacco). However, following the 1815 Treaty of Paris, British and French soldiers and sailors were discharged, and most either went home to or found employment at farms and factories. Soon, many of the manufactured goods that were formally imported from the United States were now locally produced. Suddenly deprived of these lucrative overseas markets in which hundreds of units of their goods and commodities were sold at a given time, American farmers and manufacturers were stuck with far fewer buyers.
• All paper bills are not equal
Putting teeth into the depression’s bite was the circulation of worthless paper money. Unlike today, in the 1820s there were no official legal tender Treasury greenbacks being issued and circulated. State banks—unregulated and devoid of federal oversight—were operated by their directors and stockholders as commercial enterprises and answerable solely to themselves: not even the Second National Bank of the United States was answerable to the American people. Each state bank printed and issued its own distinctive paper money. The value of a particular bank’s bills was solely dependent upon the health of its balance sheet. Having extended credit broadly and unwisely to many high risk debtors and speculators, thereby issuing more bills than they had the “Hard money” (gold and silver) reserves to honor (i.e. back), state banks found themselves teetering on the edge of a precipice: if a multitude of customers wanted their bills redeemed for gold and silver all at the same time banks would go belly-up.
• Trying to get people to move West
The enactment of the Indian Removal Act, and the acceptance of credit in lieu of hard cash for land had made moving West a tempting proposition. To encourage people yet further, the Land Act of 1820 reduced the minimum price for land to just $1.25 per acre with a minimum purchase of 80 acres and a down-payment of just $100! Nearly 3.5 million acres of land were “purchased” in that year alone. To act as yet another inducement, Congress later halved the minimum purchasable unit to just 40 acres.
Though land was disappearing like hotcakes, most of it was being gobbled up not by settlers but by land speculators who tried to make a killing by selling it at inflated prices to the settlers. As a consequence of this speculation, tons of that nearly worthless paper money was floating around.
• President Jackson really hates banks
The charter authorizing the Second Bank of the United States was up for renewal and its director, Nicholas Biddle, knew full well how much President Jackson hated banks. Jackson wasn’t the only one. In 1819, Chief Justice John Marshall ruled in McCullough v. Maryland that Congress had no right under the Constitution to charter a national bank. Many people shared that view. Considering his 1832 reelection as a widespread mandate to destroy the Second National Bank, Jackson sought to kill it outright by allowing its charter to lapse. Biddle hoped to ensure its renewal by proposing to Jackson that the bank assume what was left of the national debt—which he, Biddle, was sure could be dully and fully paid off before Jackson left office if only he, Jackson, would sign the bill. The offer was found by Jackson to be so repugnant that he ordered the removal of all government deposits from the Bank’s vaults and placed the dough instead into 23 state chartered institutions which he personally selected. Initially, Biddle hoped to counter Jackson by calling in loans and contracting credit. Consequently, loans became few and made nearly impossible for which to qualify; mortgages were foreclosed; paying strictly in gold and silver coins became mandatory. When Jackson failed to cry uncle, Biddle tried to compensate for the economic turmoil he just unleashed by authorizing the Bank to go nuts and issue loans to pretty much everyone who wanted them. In order to finally break the Bank’s neck and put his foot on it, Jackson forbade those particular banks in whose vaults he had placed that federal money from issuing banknotes less than $5 in value. In his 1836 Presidential Order nicknamed the Specie Circular, Jackson forced prospective purchasers of public land to pay in gold and silver coins.
Many banks across the country whose gold and silver reserves were inadequate to meet the wave of withdrawals were bankrupted; others were forced to call in any and all loans which they had made, payable immediately, in coin not cash. Land became virtually worthless; demand for manufactured goods diminished; foreclosures and bankruptcies robbed hundreds of their homes, farms and businesses.
• Texas doesn’t look so bad
Simultaneously, over in Spanish Texas, an Anglo American—man or woman—who could demonstrate being the head of a household could take advantage of a spectacular deal: a headright (i.e. legal grant) of 4,605 acres (4,428 acres of suitable grazing land and 177 acres of irrigable farm land) at a cost of about four cents an acre ($184)—with as many as six years to pay! Further enticement for settling in Texas was a lack of reciprocity between legislators in Mexico City and Washington: Mexican authorities had no incentive to identify, apprehend and extradite American debtors and fugitives living in Texas (though, by 1827, many Mexicans concurred with General Manuel de Mier y Teran that “A great number of the foreigners who have entered the frontier are vicious and wild men with evil ways … they create disturbances and even criminal acts”).
In theory, colonization provided Mexican legislators with an inexpensive and nonviolent means of thwarting the American annexation of Texas and for halting the expansion of various Indian nations. However, by 1836, when the Anglo population in Texas had reached no less than 20,000, the Mexicans recognized that they had only compounded their troubles. A significant percentage of Anglo settlers were squatters who paid no heed to Mexican ownership titles and laws. They made no effort to learn Spanish, considered themselves exempt from Mexican authority, and practiced slavery. Being more intelligent than the Mexican legislators had given them credit, the Anglos weren’t overly keen in going head-to-head- with the Indian nations and wrestle their land away; in fact, Anglos rarely strayed into their respective territories.
De Cesar, Wayne T. and Susan Page. Jefferson Buys Louisiana Territory, and the Nation Moves Westward.” National Archives. Spring 2003, Vol. 35, No. 1. December 13, 2007. Accessed July 5, 2019. https://www.archives.gov/publications/prologue/2003/spring/louisiana-purchase.html
Lee, Robert. 2017. “Accounting for Conquest: The Price of the Louisiana Purchase of Indian Country.” Journal of American History 103 (4): 921–42. doi:10.1093/jahist/jaw504.
“The Louisiana Purchase: Napoleonic France Acquires Louisiana.” Collection Louisiana: European Explorations and the Louisiana Purchase. Accessed August 6, 2019. https://www.loc.gov/collections/louisiana-european-explorations-and-the-louisiana-purchase/articles-and-essays/the-louisiana-purchase/
Potter, Dylan. “The Louisiana Purchase and the Birth of American High Finance.” Howe and Rusling. March 9, 2019. Accessed August 7, 2019. http://www.howeandrusling.com/news/louisiana-purchase-and-birth-american-high-finance
Siteseen Limited. “Panic of 1819: History for Kids.” United States History for Kids. January 9, 2018. Accessed August 6, 2019. http://www.american-historama.org/1801-1828-evolution/panic-of-1819.htm
Siteseen Limited. “Specie Circular: History for Kids.” United States History for Kids. January 9, 2018. Accessed August 6, 2019. http://www.american-historama.org/1829-1841-jacksonian-era/specie-circular.htm
Young, Raymond A. “Pinckney’s Treaty-A New Perspective.” The Hispanic American Historical Review 43, no. 4 (1963): 526-35. doi:10.2307/2509900.