Texas treasury notes and the election of 1844.

• Author: Pecquet, Gary M.

But suppose we [the Liberty Party] had all voted for Mr. Clay--suppose him elected and Texas kept out--where would have been the Liberty Party? Scattered among the slaveholders and their allies, without having accomplished anything.

--James A. Birney, Cincinnati Daily Gazette, March 12, 1845

The election of 1844 is recognized as one of the great turning points in U.S. political history. Prior to this election, the country had accommodated itself, more or less, to the compromise it had made with slavery at the Founding. With the election of 1844, however, the country had to decide whether, as it expanded from ocean to ocean, its Manifest Destiny was to promote the cause of liberty and equality as expressed in the Declaration of Independence or instead to promote the peculiar form of slavery that had developed within its borders (Craven 1957).

In the election of 1844, the possible annexation of Texas amalgamated the issues of slavery and expansion. James K. Polk and the Democrats called for immediate annexation. Advocates of Manifest Destiny supported annexation not merely because it would add Texas to the union, but also because a war with Mexico, which the annexation might provoke, would provide an opportunity to seize all of northern Mexico and thereby enable the United States to reach the Pacific Ocean. Pro-slavery factions sought annexation in order to admit Texas as a slave state and to prevent Great Britain, the foremost proponent of abolition, from establishing a presence in Texas.

Henry Clay and the Whigs adopted a nuanced position with regard to annexation. They supported annexation only under what they described as proper conditions. Continued compromise with slavery, however, had become unacceptable to a growing number of people in the northern states, who had organized themselves into the country's first "third party," the Liberty Party. The election proved to be as close as it was momentous. The final outcome turned on the Liberty Party's ability to siphon enough votes away from Clay to tip New York and therefore the election to Polk.

In this article, we examine the revival of the moribund liabilities of the Republic of Texas as annexation became a possibility, and we trace the course of their market value through the election of 1844 and afterward. (As of 1846, the national debt of Texas was $10 million, of which $3 million was in the form of Treasury Notes and the rest in the form of bonds and other claims [Miller 1916, 391]). The prices of the liabilities of the Republic of Texas during the campaign reveal the market's assessment of the prospects of a Polk victory. The jump in these prices upon the reporting of the votes--in particular, upon the reporting of the votes from New York--reveals the extent to which the outcome came as a surprise.

In addition, we examine the course of the market value of Texas securities after Polk's election, through the legislative process concerning annexation both in the U.S. Congress and in Texas, through the Mexican War, and through the second repudiation of these securities by Texas. We characterize this entire period as Episode II. (1)

The data we have assembled allow us to take a fresh look at the election of 1844 and to make a definitive statement regarding the market's assessment of its probable outcome. Clay was viewed initially as the favorite, but with the conduct of certain state elections during the run-up to the presidential election, the outcome came to be seen as in doubt. By the end of September, Polk seemed to have the advantage. By the end of October, Clay's fortunes had rebounded. At the time of the election itself, the outcome was truly uncertain, and this uncertainty was resolved only by the counting of the votes from New York.

A Time Series of the Market Value of Texas Treasury Notes

We have constructed three time series of the market value of Texas Treasury notes that show end-of-week prices (more precisely, last-observed, weekly prices). These series are displayed in figures 1 to 4. (2) The first is a time series of market quotations that spans the period from the New Orleans market; it is based on seven New Orleans newspapers, most important the Bee, Commercial Bulletin, Daily Picayune, and Price Current, and, less important, the Commercial Times, Jeffersonian-Republican, and True Delta.

[FIGURES 1-4 OMITTED]

The second time series is a sporadic series of quotations from the New York Journal of Commerce and the New York Herald, from March 1844 to January 1845. The third is a series cobbled together from six Philadelphia newspapers, primarily Bicknel's Reporter and the Philadelphia Public Ledger, but also the Bulletin, Commercial List, North American, and United States Gazette. This series begins in October 1844 and continues until the ultimate redemption of the liabilities of the Republic of Texas.

Newspapers of the time often published currency tables, with quotations on foreign and domestic exchange, bank notes, and other financial claims. These currency tables typically were "corrected" daily, semiweekly, or weekly by a local broker. (3) Insofar as brokers acted as market makers, these quotations would be relatively free of the noise associated with sales prices bouncing between bid and ask prices or with other causes. Unfortunately, it is apparent that broker quotes were sometimes stale (as might happen if brokers included quotations in their tables for the sake of apparent completeness, for securities for which they were not market makers and to which they were not always attentive). Moreover, sometimes brokers were accused of "puffing" the values of certain bank notes in return for bribes or other considerations (Dillistin 1949, 47-51). Therefore, we determine carefully whether the broker quotes we use are representative of contemporaneous broker quotes from other sources and of sales prices in the same market.

With regard to the market value of Texas Treasury Notes in New Orleans, quotations from the New Orleans Price Current cover the entire period of this study, except for two gaps. We filled these gaps, first, by reference to the New Orleans Commercial Bulletin (from May 13, 1844 to March 15, 1845) and, second, by reference to the New Orleans Commercial Times (from June 24, 1848 to July 24, 1848).

With regard to the market value of Texas Treasury Notes in New York, we have only a few quotations. For lack of a better option, we treat both broker quotes and sales prices as interchangeable. We also include some quotations, both broker quotes and sales prices, on Texas Treasury Bonds, divided by 1.4, which equals the ratio of bond to note prices when they are observed simultaneously or nearly simultaneously in the New York market at the time.

With regard to the market value of Texas Treasury Notes in Philadelphia, we use sales prices from October 3, 1844, to December 9, 1844 (these prices being the only data available) and broker quotes from Bicknel's Reporter from December 10, 1844, to December 8, 1849, except as shown in table 1. Our sales prices are from the Philadelphia Public Ledger, with additions and corrections based on sales prices and broker quotes in the other Philadelphia newspapers we tracked. On ten occasions, we used a quotation on a bond price divided by a nearby ratio of bond to note prices. On one occasion, we used a linear interpolation.

The Emission of Red Backs and Their First Repudiation

In 1837, the fledgling Republic of Texas began to issue promissory notes suitable for use as currency, unbacked except that they were receivable in payment of taxes. The Red Backs--so called because of the red ink used on their reverse side--were the predominant form of these promissory notes. Through the next several years, the republic embarked on a program of inflationary finance, issuing at par many times more promissory notes than the Texas economy needed for a medium of exchange.

By 1840, the currency of Texas had become greatly depreciated, and its economy was in ruins. Weems and Weems observe that trade had come to a virtual halt (1971, 169). Hogan, relying on the correspondence of a prominent Texan who had originally supported the issue of promissory notes, indicates that business was depressed and "times ... terribly hard" (1946, 87-88). For the next year or so, the government of Texas tried to secure a bailout in the form of a foreign loan. In the end, however, there was no bailout, and in 1841 there was a change of government.

Following the 1841 election, the new president of the republic, Sam Houston, instructed the Texas Congress to repudiate the much-depreciated currency, and by February 1842 the Red Backs and Texas bonds had lost their acceptability for the payment of taxes. Following this repudiation, the market values of these securities fell to zero or nearly zero, and they ceased being traded actively. (4) The Texas economy remained a shambles. In the interior, most economic activity was conducted on a barter basis. "Money was scarce in Texas; not one in ten sales were made in cash" (Carlson 1930, 6). Although prices might be quoted in silver dollars, the "general system at present is exchange, or barter," one resident of the time commented (in Hollon 1956, 269). An example is given of the sale of land for $1,400, for which the buyer paid with a Negro boy valued at $600 and a note (Hollon 1956, 270).

In Galveston and Houston, some commerce was conducted on the basis of trade credit and with the use of merchant notes. (5) For example, one merchant issued several thousand dollars worth of tickets redeemable in groceries (Hayes 1974, 338-39). It might also be inferred from repeated warnings against counterfeits (for example, in the Telegraph and Texas Register, December 21, 1842, and February 8, 1843) that small-denomination municipal scrip from New Orleans served as change notes. Various promissory notes issued by individuals also circulated (Telegraph and Texas Register, March 27, 1844...