Crucible of War

by Fred Anderson

  Along with the decline in European demand for sugar and the rise in marine insurance rates that accompanied Spain’s entry into the war, in 1761 and 1762 merchants had to face problems that grew out of drought and poor harvests throughout the colonies. Fortunately Parliament’s subsidy payments continued to flow in, the army and navy still spent money to outfit Caribbean expeditions, and the conquests of Martinique and Havana furnished new markets for speculative trading: factors that moderated the recession’s impact sufficiently that in 1761 and 1762 its victims remained the small, poorly capitalized traders who had entered business during the boom years. Better-established merchants—those with capital reserves or reputations sufficient to satisfy their creditors that they could be trusted—tended to experience the first two years of the downturn as a time of stagnation, not disaster. Most traders anticipated a return to prosperity when the war finally ended and “normal” trade could resume.3

  As their inventories dwindled, the larger merchants’ confidence revived; so that when their British correspondents once again began extending credit early in 1763, they unhesitatingly ordered new shipments and built up their stocks in anticipation of better times ahead. Their historical experience suggested the rationality of such optimism, for during previous wars, economic stagnation and recession had accompanied hostilities, and economic recovery came with peace. Although the last half of the present war had seen an unprecedented boom in British overseas trade, merchants had no reason to assume that the end of the war would bring anything but further prosperity. But sales did not meet their hopeful expectations, and when the Amsterdam-led panic of 1763 obstructed the flow of credit to the colonies many found themselves crushed between the rock of high exchange rates and the hard place of glutted markets. 4

  The bankrupts who appeared in the northern port cities late in 1763 and early in 1764 therefore included not only the scruffy upstarts who had been failing in the preceding years, but well-capitalized firms like Scott and McMichael of Philadelphia, which stopped payment on fifty thousand pounds in debts in December 1763. In New York during 1763 and 1764, the number of court-enforced sales of property in suits for debt trebled over previous levels; in Philadelphia, the number doubled. As the stress rose, merchants often tried to survive by gambling on ever-riskier ventures in the hope of making the great profit that would clear them of debt. Thus, for example, in 1764 Thomas Riche of Philadelphia formed a partnership with a New York merchant he barely knew in order to ship provisions to the French South American colony of Guiana—a flagrantly illegal enterprise, but one that promised fabulous returns. Riche, who had amassed a fortune as a wartime trader to the French West Indies only to suffer serious reversals in 1762 and 1763, hoped to make a killing and satisfy his creditors, but he only succeeded in delaying the day of reckoning. It would not be until 1770 that he could wipe the slate clean, and then it cost him nearly everything he had. He died raising sheep on a farm in New Jersey.5

  Thomas Riche acted in accord with a principle that later businessmen would erect as a financial axiom: “If you owe your banker a thousand dollars and have five hundred to pay him, you’ve got a problem; if you owe your banker a million and you don’t have a nickel, he’s got a partner.” The very size of Riche’s debts helped keep him in business long after a smaller, more timid operator would have landed in debtor’s prison. Many merchants, less big and bold than he, failed outright during the 1760s. Others reduced their operations. A few took Riche’s kind of gamble and succeeded. What the depression meant was not universal bankruptcy, but rather that the ratio of failures to successes, always high in the colonies, rose higher than ever. So long as credit remained scarce, fewer prospective merchants could enter business to replace the unlucky or unskilled ones who failed. In the meantime large troubled firms like Riche’s— those able to use their level of indebtedness to buy time or pry more loans out of their creditors—absorbed much of what credit remained available while they survived, and made bigger holes in their local economies when they fell.

  For it was not only British merchants and financiers to whom American traders owed money. When a provision merchant like Thomas Riche went broke, his creditors included shipwrights, carpenters, coopers, sail-makers, cordwainers, block-makers, victuallers, tailors, shopkeepers, ship chandlers, and all the rest of the small businessmen and artisans with whom he kept accounts. When they in turn could collect only shillings on the pound, they were correspondingly less able to meet the demands of the people with whom they did business. Once they could no longer hire journeymen and laborers, or pay wages to their housemaids and cooks, urban unemployment rose. At the same time, military veterans, sailors, and ex-privateers tried to reenter the ports’ labor markets, further depressing wages and increasing overall levels of poverty. Thus the failure of a bank in Amsterdam could cause a credit contraction in London that would in turn bankrupt scores of merchants in colonial port towns, threaten the livelihoods of hundreds of middling American artisans and petty entrepreneurs, throw thousands of colonial laborers and small craftsmen out of work, and render the lives of everyone who depended upon them miserable. These were cyclical, not structural, increases in business failure, unemployment, and poverty: an early, severe, prolonged version of the kinds of readjustments to peace that twentieth-century economists see as routine. But because the people who experienced them in Boston, New York, and Philadelphia did not necessarily understand that these were temporary conditions, and because they followed so closely on a period of high employment, high wages, and prosperity, they made life for everyone—from a merchant baron like Thomas Riche to the anonymous woman who washed his shirts—more stressful, more tenuous, than ever.

  In varying degrees, all of the major northern ports were suffering in 1763 and 1764, and none of them had yet seen the worst of a depression that would deepen through 1766, moderate in 1767, and then plunge into even deeper distress.6 Boston felt the pinch first, and worst. Already in 1760 its merchants had formed a Society for Encouraging Trade and Commerce in response to the downturn’s beginnings. By 1763 the organization had dedicated itself to lobbying Parliament for special treatment in the hope of reviving their trade. The city’s expenditures on poor relief, which had never exceeded the equivalent of eight hundred pounds sterling before the war, reached nearly two thousand pounds in 1764. In New York the presence of the army’s headquarters, military contracting for the West Indies expeditions, and shipbuilding that remained strong even after the end of the conflict all delayed the onset of the recession, but by early 1764 New York merchants were complaining of cash scarcity, crushing exchange rates, and uncertainty. “Everything is tumbling down,” one wealthy Manhattanite wrote, “even the merchants themselves.” Philadelphia was fortunate in that the demand for flour in the West Indies remained strong well into 1763, so that the continuing vigor of the provision trade could offset the disastrous state of the market in dry goods, which collapsed in late 1760 and stayed flat for a decade. The disintegration of the West Indies trade in early 1764 inaugurated the greater collapse to which Thomas Riche responded with ultimately fatal ingenuity. Shipping clearances fell, the price of flour plummeted, currency vanished from circulation, merchants struggled to stave off creditors—and the Overseers of the Poor complained that the almshouse was so overcrowded that they were cramming as many as six beds into each tiny room.7

  The northern countryside experienced less distress than Boston, New York, and Philadelphia, but the effects of recession extended at least to the limits of each city’s commercial hinterland. The degree to which farmers suffered depended on the degree of their integration into the Atlantic market, but in general all those who had prospered during the war by selling the army their services (mainly in the middle colonies and New England), their grain (in the middle colonies), or their beef and pork (in New England) found that they were earning much less money. Rural storekeepers, pressed by the urban merchants who supplied consumer goods on credit and took produce in return, tried with new insistency to co
llect the debts their customers owed them. The less a farmer depended upon storekeepers, the lower his burden of indebtedness, the less the depression meant to him. Price movements in rural Massachusetts during the postwar years suggest that the droughts of 1761 and 1762 influenced most New England farm families’ lives more than anything that happened in Boston, let alone London and Amsterdam. Even so, prices for agricultural commodities diminished enough during 1763 and 1764 to suggest that the postwar depression could be felt throughout a province that was by no means dominated by commercial agriculture. Where commercial farming dominated, as in the Delaware and Hudson Valleys, the effects of the depression were of course palpable. But even there farmers still had at least a limited option of “retreating into subsistence,” or growing crops for consumption and local exchange rather than for sale, until prices recovered.8

  In Virginia and Maryland, the tobacco provinces where commercial agriculture had been longest established in America, however, subsistence farming offered no safe haven of retreat. In the tidewater counties along the Chesapeake Bay, the effects of the postwar depression were as severe as in any northern city. Tobacco planters had been experiencing serious difficulties since about 1750. First, changes in international markets had destabilized the normal fluctuations in tobacco price levels, to which planters were accustomed; then, during the war, a series of poor crops had aggravated problems of selling in France’s monopoly tobacco market. Despite these circumstances, however, the easy credit policies of London merchant houses encouraged the gentry to continue consuming high-quality English products. Planters whose detailed knowledge of tobacco production was more than matched by their ignorance of international markets, and even of the balances in their own accounts, mortgaged crops not yet planted to support extravagant tastes. Then came the escalation in exchange rates of 1762 and the planters’ sudden discovery that their English merchant-creditors were no longer willing to let them defer payment by offering credit against the sale of future crops. Thus one planter, whose service against the French and Indians had scarcely prepared him to do battle with his London creditors, greeted the news of the Treaty of Paris only with expressions of hope for relief: “We are much pleased at the Assurances of Peace which ’tis to be hoped will be of long continuance, and that the Tobacco trade will fall into an easy and regular Channel again, to the Mutual advantage of all concerned.” 9

  That Colonel George Washington reacted in such an evidently prosaic way to the most glorious peace in British history might seem surprising, but in fact his comment represented the views of his class as accurately as it reflected his own recent experiences and concerns. Since the heady moment when he married Martha Custis in 1759, combining their estates into one of the preeminent holdings in northern Virginia, everything Washington touched had turned to brass. He had failed repeatedly to grow profitable tobacco crops. In London his leaf had acquired an unshakable reputation for mediocrity. Meanwhile the expenses of maintaining a great planter’s lifestyle, while keeping up a slave labor force and several plantations, had proved unrelenting. His own debtors—former comrades-in-arms who unhesitatingly touched him for loans, neighbors with whom he ran accounts, tenants who owed him rent—were slow to pay, and sometimes never did; yet he was too tightly bound by the expectations of gentlemanly behavior to refuse a loan when asked, or to press a debtor insistently when payment fell due. By 1763 Washington found himself deep in debt, doubting that he would ever extricate himself by growing tobacco, and casting about to find some way out of his predicament. In these ways he was absolutely typical of his fellow planters, and indeed differed only in that he had begun making efforts to economize. As a result Washington would never run into such spectacular trouble as his fellow colonel, William Byrd III of the 2nd Virginia Regiment. By the time Virginians first felt the bite of the Amsterdam panic in 1763, Washington was probably not far over two thousand pounds in debt, but Byrd was well on his way to racking up the twenty thousand pounds in obligations he would never pay off. 10

  The planters’ responses to economic stress in some ways resembled those of the northern merchants. Like Thomas Riche, who preferred taking greater risks over liquidating assets to pay off his creditors, most planters tried to avoid selling land or slaves to reduce their debts, but instead looked for other ways to free themselves from their creditors’ grasp. Some, frustrated with tobacco as a crop that seemed only to lead to greater debt, began looking for another staple to raise. Others experimented with plantation enterprises. Many plunged into land speculation, which had always provided Virginia gentlemen with a large part of their income, and never more so than when tobacco prices went slack.11

  Washington tried all three methods. In 1764 he began experimenting with growing wheat, the crop that was fast displacing tobacco across the Chesapeake in Maryland—cautiously at first, then more confidently until he abandoned tobacco in its favor. He also began distilling brandy from peach cider: no longer just for home consumption, but for sale. But most of all he speculated in land. On the same day that Chippewa warriors seized Fort Michilimackinac ( June 3, 1763), the master of Mount Vernon joined eighteen of his fellow gentlemen in a new company, limited in membership to fifty shareholders and formed to acquire the rights to lands on the Mississippi River. Many of these partners had previously been associates in the Ohio Company. But that venture, organized to claim a mere 200,000 acres, had been beggarly by comparison to this one. Each member of the new Mississippi Company expected to receive 50,000 acres of the nearly 4,000 square miles (2,500,000 acres) that the company proposed to acquire. To that end, each partner subscribed money to support an agent to represent the company in London until he could persuade the Privy Council to make the grant. Meanwhile, Washington was becoming even more deeply engaged in another, local speculative scheme. His purpose was to acquire the Great Dismal Swamp—perhaps 650 square miles of aptly named wetlands on the border between Virginia and North Carolina. He had convinced himself that this, the last large unoccupied tract near the coast, would yield tens of thousands of acres of salable land if it could be drained. Thus he spent much of the fall of 1763 looking over the territory, persuading others to become partners in the venture, and arranging for the preliminary surveys.12

  Although Washington was unusually active as a land speculator, there was nothing atypical about speculation as a response to hard times in the early 1760s. Even before the Mississippi Company and the Great Dismal Swamp venture were getting under way, the Ohio Company had dispatched its agent to London in an effort to reanimate itself. Simultaneously its old rival, the Loyal Company, was trying to revive its prewar claim to 800,000 acres in the Kentucky Country, south of the Ohio River. And these were only the largest partnerships: individual gentlemen and informal associations of kin continually speculated in lands closer to home, if only because there was little else in which to invest that seemed to offer any prospect of return. Nor were Virginians the only colonists who saw speculative ventures as reasonable responses to a troubled postwar economy. Prominent and not-so-prominent colonists everywhere engaged just as eagerly in land speculation, with the same motives—as a gamble against adversity, a chance to regain ground lost or slipping away. Examples of these efforts can be found in most colonies, but two of the most telling ones come from Pennsylvania and Connecticut.

  In December 1763, before he left Philadelphia on the complex mission intended to serve the interests of Sir William Johnson as well as himself, George Croghan arranged to represent the interests of a dozen or so of Pennsylvania’s biggest Indian traders—the “Suffering Traders,” as they called themselves in light of the losses sustained in 1754 and again in 1763. Once in London, Croghan not only advised Halifax on his comprehensive plan for the reform of the Indian trade but tried to persuade the Board of Trade to grant him 200,000 acres in the Mohawk Valley in exchange for his tract at the Forks of the Ohio (now beyond the Proclamation Line). Because the board refused to approve his application for the compensatory New York grant and because it soon
became clear that Parliament would never make a special appropriation to cover the Suffering Traders’ losses, Croghan shifted his ground, advocating a new colony on the east bank of the Mississippi, between the Illinois and the Ohio Rivers. By the time he sailed for America in September 1764, he had evolved a plan that would transform the Suffering Traders’ petition for compensation into a claim for western lands in the projected colony of Illinois, and he had made the necessary London contacts to sustain the project in his absence. One of these men was the agent of the Pennsylvania Assembly, Benjamin Franklin, who would become a leading proponent of the Illinois venture. Another was the Right Honorable Anthony Bacon, M.P. for Aylesbury, merchant, inveterate pursuer of American profits, and architect of the Currency Act of 1764. For the next four years Croghan would devote himself, tirelessly if without success, to promoting the Illinois enterprise. He would remain committed to it, in one form or another, for the rest of his life.13

  While Croghan was using his relationship with Sir William Johnson to advance his and the Suffering Traders’ case before the Board of Trade and Privy Council, a New Englander—less flamboyant but even more tenacious—was flogging his own contacts in pursuit of an equally ambitious speculative claim. Major General Phineas Lyman had commanded Connecticut’s forces from 1755 through 1762 and at the end of the war was indisputably America’s most experienced provincial officer. When the survivors of the Havana expedition, returning from a hellish campaign to face diminished prospects at home, met at Hartford in mid-June 1763 to form “a Company of Military Adventurers, for obtaining a Grant of Lands sufficient for a Government, in some of the conquer’d Lands in America,” Lyman had been the consensus choice to represent them in London. In typical New England manner, each man subscribed a small amount (two dollars initially, three dollars later) to support Lyman’s efforts. Modest as it was, in the end this came to no insignificant sum, for by the middle of 1764 more than two thousand men—veterans, their heirs, and relatives—had taken shares in the company. By November 1763, the general was already in London, knocking on doors and making his case to anyone who would listen for a major grant to the New England veterans. The proclamation’s promise to reward “the conduct and bravery of the officers and soldiers of our armies” with land bounties boosted Lyman’s hopes, but he was still knocking and explaining when Croghan left in late 1764. Indeed he would continue to do so for almost a decade, plying as best he could his friendship with the British officers under whom he had served. Finally, in 1772, he would receive assurances that the grant he sought would be approved, and he returned to Connecticut. In 1773 he would head a major migration of New England veterans, their families, and others who had joined the venture as associates, to the lower Mississippi Valley, in the new colony of West Florida.14