I am pleased to introduce david cowan. He has written extensively on u. S. Financial history and is the coauthor of financial founding fathers, the man who made america rich. He is the cochair of the International Federation of finance museums and serves on the smithsonian affiliates Advisory Council as well as the Federal Reserve boards centennial Advisory Council. David has been the museums president and ceo since 2009. He has established several new initiatives, including the center for Financial Education and then using finance academy. He has curated or guest curated on over half a dozen exhibits and displays, incurring including our current exhibit. Will explore how one of the treasurys greatest leaders helped fight the war of 1812. I will now turn the program over to david cowan. Thank you. I appreciate the opportunity to talk about the war of 1812. We are at the bicentennial of the events. We are going to break it down into three different sections. We are going to break a breakdown of what led us into this war. Going to get into the main event of what we are going to discuss, which is the financing of the war of 1812. Background as usual, the european powers are engaged in the struggle. In particular, its the United States versus france, but eventually, everyone is going to gang up on napoleon. For the british, this is a sideshow. Napoleon is the main enemy at the time. The u. K. And france are competing for our natural resources. Content is king back then. Contemporaries called this the second war for independence. It very much validated american independence. Heres a pamphlet dated 1815. You can see where they say, the the secondistory of war for independence. Our nation this is circa about 1800. What is interesting to me take a look at the upper right where presentday maine should be. It is part of massachusetts. Thereason for that, compromise of 1820. They are trying to keep the balance of slaves states and free states. Maine is carved out of massachusetts when missouri comes in. Britishso, we have the in the north and canada. We have the spanish to the south and the west. France and the fabled Louisiana Purchase of 1803. We go to napoleon and say, we want to buy the plot, the port of new orleans, 411. 25 million. He says, i will throw in the whole thing for 15 million. We dont have that kind of money, but guess who does . Nvestment bankers in europe the third line down to the right, Holding Company of amsterdam in the same old frances Bearing Company of london. We get the money. By britishwritten Investment Bankers. They are going to give the money to us. We will give it to napoleon. What is he going to do with the money . Of course, hes going to declare war on the british and everybody else. Why . Because business is business and war is war. This is a wonderful certificate. It says louisiana 6 stock. It is a nomenclature issue. It comes from the collection of john herzog. He has let us have an image of this upstairs on display. What else is going on . The british are invading our territorial waters. They are violating our neutrality. They are impressing our sailors, grabbing them off our ships and putting them onto theirs right in the british navy. They are drafting them on the spot. This is vexing for us. The british are just looking for deserters. For us, this is a clear violation. At the peak when the hms leopard, her majestys ship, attacks the chesapeake in Chesapeake Bay june 22, 1807, they get off dozens of shots at us. We return one measly shot. They board our ship. They killed three americans and wounded 18. Depending on which history book you read, they plucked four or five people off the ship. They do hang one for desertion. This is a clear act of war against us. Our president at the time as thomas jefferson. Our nation is illequipped to fight the british. He had been drawing down the military from when it was built up during the federalist period beforehand, so his solution is embargoes. Similar to what we are doing today with some nations. He starts with the embargo act of 1807. This is pointed at both the u. K. And france which had been preying on our ships. Madison comes to office in 1809. In 1810 we passed one of my favorite pieces of legislation because it is so complicated, it is called macons bill number two by a North Carolina representative. This will said whichever do not attack us, we will cut off the other one. Napoleon being very shrewd said i will do that trade. What did he do . We cut off trade with the u. K. And that keeps napoleons ships attacking us. Be aware when we put these embargo acts in place, this is hurting new england which traded extensively with old england. You end up with an underground economy and a tremendous amount of smuggling will go on with the canadian border. This is so unpopular. This is a cartoon of the day. It may be tough to see. I cannot say the first word because it is a curse word back then. You see we have a smuggler getting bit by a turtle. Oh grab me is a play on words. Take the word embargo and spin it around, and you get oh grab me. There is another way they took the word embargo in cartoons of the day. You can play around with the word and get mob rage. This is a big problem because the tariff is the main source of revenue. This is a tax on imported goods. Our revenues will plummet. How well did all these embargoes do . It is tough to see. The red line is our imports. From the peak in 1806 of about 140 million, it is crushed to below 10 million. We did a really good job, right . What happened to exports . Guess what . We crushed exports as well. Not very good for an economy. In many ways, these were very invidious acts that hurt us extensively as well. Now we are going to do a quick war refresher. We got the background leading to events. James madison is president at the time. One has to understand madison since a list of grievances to congress. But we almost stumble into this war. What are the grievances . British forts in canada, a british army in canada, impressment of sailors. Just like today when we have neocons, we had what they called war hawks back then. John c. Calhoun and henry clay. They are pushing this in congress. This is the first time we declare war as a nation. It is on june 18, 1812. Three years to the date is the date of waterloo, june 18, 1815, for the history majors in the audience. There were highs and lows. One high was the battle of the uss constitution. This was the battle with the navy, the premier force of its day. Not all those ships are deployed here. Only about 85 ships are in american waters. We have 22 against it. You know her nickname, old ironsides, even though she was a wooden ship. The british ball bounced off of it giving it her the nickname. You can visit the uss constitution in boston harbor. The worlds oldest ship, but it is a museum. Another high, the battle of lake erie where Oliver Hazard Perry defeats the navy. We captured six vessels. He is famous for a couple of phrases in American History. One is, dont give up the ship. This is a painting of him giving up the ship shot out from under him. The other one is, we have met the enemy, and they are ours. One more highlight is the battle of new orleans, the final major battle of the war fought january 8, 1815. The only problem with that is the treaty to end the war was signed on december 24. Therefore, they could not get the news here. This battle never should have been fought if they got the information here. Remember the vagaries of the wind and the ship getting here. During that battle, remember who it propelled to National Prominence . Old hickory, andrew jackson. Within a dozen years, he is going to be in the white house and eventually on the 20 bill. We are going to do some lows. Many times we invaded canada during the revolutionary war. We did it again and effectively during the war of 1812. We are annoyed with the string of british forts in canada. We tried to invade to capture montreal. He is from montreal, we were invading you. We come up short. There is the battle of chrysler farms. We outnumbered the british 10 to one and still cannot make it happen. Should get an idea of casualties, casualties during this warm anymore due to disease in the army than to gunshots. I also want to point out the old phrase, the enemy of my enemy is my friend. In many cases, the british were being assisted by native americans, in this case, the shawnee tribe led by tecumseh. He will fall in battle in 1813. How about another low . This is the burning of washington. We are just about to come up on the 200th anniversary of our capital being sacked. The white house was burned. The navy yard was burned. The capital was burned. A very big blow to our prestige. Not a lot of casualties. A lot of plunder. This is the famous story were Dolley Madison wraps up the portrait of George Washington and runs out the back of the white house to save it. Here is the white house in flames. It is rebuilt to its former splendor. On the right, that is the admiral of the british fleet. This is a painting that hangs in the royal museum in greenwich. Here he is very boastful in that post. That is washington, d. C. , burning behind him. I find it a nice irony that our closest ally, the british, have a painting of our Nations Capital on fire with one of their admirals in front of it. Another low point was called the hartford convention. It gets a lot of play in the history books. Late 1814, early 1815, a group of new england federalists meet. One of their grievances is to limit the power of these embargoes which are hampering their trade. They want to limit congresss approval to declare war, sounds familiar. There are no records kept. But it is possible they talked about secession. Lampooned as always in the cartoons of the day, on the lower left that is king george iii in open arms. He says, jump in my fine fellows, plenty of molasses and codfish, plenty of goods to smuggle, honors, titles and nobility into the bargain. I did not want to end the war section on a low note, so lets end it on a high note. Coming up next month, the battle of baltimore. That inspires the amateur poet, Francis Scott key. He had a friend captured by the british. He does out to try to get his friend free. The british nab him and put him on a ship. He is watching the bombs bursting all night at fort mchenry. In the morning, our flag is still there. He said it to a popular british song. It has four stanzas, but we only sing the first. Lets turn our attention to whos problem it is to finance. His name is Albert Gallatin. He is the fourth secretary of the treasury. The painting on the left is from the apex of his powers. Hes going to live to the ripe old age of 88. Therefore, we have a daguerreotype of him on the right. It is fascinating to have of the founders a photo image of them. He is the fourth treasury secretary, the longestserving secretary of the treasury. I like to think of him as the jeffersonian moneyman. Hamilton was the federalist money man. He is remembered on a stamp from 1967. One and 1 4 of a cent. He is kind of forgotten to American History. To show how important he was during his day, when Meriwether Lewis and clarke get to the Missouri River and name the force, they name one jefferson, one madison, and one gallatin. In his day, supremely important. He happens to be one of nyus founders. Theres something called the Gallatin School there. Certainly, the Treasury Department remembers him. This is a statue at one of the entrances to the Treasury Department. Guess whos at the other end . The federalist moneyman, alexander hamilton. At the church where he is buried, he is on the northern side. Hamilton is on the southern side. Just last week, john herzog and several others honored graveside with a wreath in memory of his death date. One other story. A couple of anecdotes to give you a flavor of gallatin. In 1784, he is living in western pennsylvania. He is a surveyor. He is after the war. General washington comes through. He is a land investor at this time. There are a couple dozen individuals gathered in a room. This is the 18th century. They are looking for the best place on the map for a road to be cut through. Finally gallatin gets frustrated with the top and says, isnt it obvious . It is right here. Well, you did not do that to George Washington. That was a big break in decorum. He gave him that famous icy stare. The whole room goes silent for several minutes Good Washington looks at gallatin and looks at the map and says, you are correct, sir. They were not good buddies. That night, washington did invite him to stay over. They slept in the same place. Washington got the bed, gallatin and his nephew got the floor. 10 years hence, gallatin is associated with the whiskey rebels. He did not want violence. He was affiliated with them. The federalists under washington who was president , hamilton put down that insurrection. A second story takes place when he is secretary of the treasury. Gallatin is born in geneva. They are known to be tightfisted. He did not like that. He was frugal. He did not like showiness. A stagecoach is going by. The passenger says to the driver, who lives in that house . The driver is purported to say, no one lives there but the secretary of the treasury breathes there. [laughter] mentioned earlier we were unprepared for war militarily. The military had been drawn down. We are unprepared fiscally as well. Gallatin knows he better get a plan in place as far back as 1807. After the leopard incident with the chesapeake, he started to think about this. He made an estimate, a difficult thing to do. He says i think this will cost 18 million a year. Maybe he thought when he wrote this he could borrow from the bank of the United States. Lets talk about the bank of the United States. The building still stands today on south 3rd street in philadelphia. It is part of the national park. It was Alexander Hamiltons brainchild, a quasi publicprivate entity. It had 80 private money, 20 owned by the government. The government starts selling it shares after hamilton leaves office in 1795. To his chagrin, they sell shares in 1796 and finish later. It dwarfs the size of other banks. In the 1790s, hamilton borrowed from the bank of the United States up to 6 million, so 60 of its capital was on loans to the government. That made the federalist directors of the banks nervous. The New York Branch was nextdoor. There is a cornerstone you can see to this day with the directors of the New York Branch. Gallatin was thinking i can borrow from the branch of the United States, right . The problem with that is it was a 20year charter. It had expired by the time war was declared. There is no bank of the United States. It was killed over political reasons. The jeffersonians are in power. This was a federalist inspired institution. A very close vote in the senate. But they decided to kill it. This is over gallatins objections. He understood how a powerful and wonderful for a secretary of the treasury this bank was. If he needs to be a judge in new orleans, there happened to be a branch of the bank down there. He can do a paper transfer. He does not have to send the money to new orleans. When jefferson came in, he wanted to annihilate the bank. There are several letters where he asks gallatin defined what is wrong with this and shutter it. Gallatin writes back about all the things the bank assists the government with and says a great line. Look, this bank is filled with bankers and it is completely in my power to crush it if need be. By the end of the day, gallatin understands the power of this bank and wants it rechartered. It was a close vote, but it was killed. So he does not have that bank. He is going to have a bunch of problems. We know about the embargo. Revenue is down. We know about the smuggling. No taxes. No bank of the United States. There are state banks with a little bit of capital, and they dont want to lend it to the government. During the war, they will only lend 5 million to the government. The bank in baltimore says we only wanted for coastal defenses of baltimore. They are rejecting this gallatin. Stephen girard will take over this building was girard bank. He is one of the richest men in the country. He will appear in our story later. What is the size . I showed you the revenues for 1813 are about 15 million. But our expenditures during the war are going to be 32 million. The blue line is defense spending. It is up almost fivefold during the war to 26 million. Other expenditures are about 6 million. We have a deficit of about 18 million. How are we going to finance . Maybe gallatin should have been optimistic because the jeffersonians when they came in were against debt and started to reduce it substantially from 83 million to 45 million. Gallatin thought i will issue bonds and increase the debt. He goes to congress three months before the war starts. Everyone knows the war is coming. In march, he gets congressional approval for 11 million of bonds, a 6 coupon, 12year maturity. He realizes a lot of things out of the box. New england is not going to support this. He sees the first 600,000 come in. Nothing from boston. That is a problem because a big sector of the country will not financially assist them. Secondly, youre going into a war with a superpower of the world. How many people want to take 12year risks . That is going to be a big problem throughout his tenure. People are concerned we might lose this war. This is an actual certificate courtesy of a gentleman named donald kagan who has a bunch of certificates i will show you. I got this by one of our consultants who joins us today. Our other currency consultant is here. He wrote several scholarly articles that mark got involved with and got