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  • The Financialization of Slavery by the First and Second Banks of the United States
  • Sharon Ann Murphy (bio)

On October 5, 1818, Baltimore residents Philemon C. Wederstrandt, Henry Didier Jr. (in trust for Rebecca Smith), and Henry Thompson entered into a seven-year partnership to purchase the Magnolia Grove plantation from Samuel B. Davis. Sugar prices were on the rise, and this fully operational plantation in St. Bernard Parish, Louisiana, would enable the Baltimoreans to get in on the lucrative emerging market. Included in the purchase price of $140,000 (about $3 million in 2020) were the land, buildings, improvements, stock, crop, utensils, and forty-three enslaved workers. Paying $30,000 (about $627,000) down in cash, the partners promised to remit to Davis the remainder in five equal installments of $22,000 (about $460,000) on each first of May from 1819 to 1823. Davis would retain a mortgage on the property until these payments were completed.1 The year after the agreement was signed, Rebecca Smith's husband, [End Page 385] Dennis A. Smith—one of the directors of the Second Bank of the United States—successfully applied for a loan of $24,000 (about $500,000) with the local Baltimore branch, offering his wife's one-third interest in Magnolia Grove as collateral. Although the property was still under mortgage to Davis, Smith argued that the plantation had already increased in value to $180,000 (about $3.8 million) due to the addition of forty more enslaved laborers and the expected success of the sugar crop. Smith intended to use this loan as the down payment for the purchase of another Louisiana sugar plantation.2 In agreeing to this mortgage, the Second Bank—through its Baltimore branch—both defied prevailing banking principles and violated its federal charter in order to openly embrace the financialization of slavery.

Unfortunately for all involved, 1819 was an inauspicious year to be borrowing money in anticipation of future agricultural profits. The Panic of 1819 resulted in a global economic contraction that sent prices for land, enslaved labor, and goods plummeting by as much as 50–75 percent off their post–War of 1812 peak values. Reaching a top price of 22 cents per pound in 1814–1815, sugar had already declined to 15–16 cents per pound in 1817–1819, before dropping sharply to 11–12 cents per pound by the early 1820s. Prices never recovered, bottoming out at under 6 cents per pound by 1831.3 Dennis Smith reported to the Baltimore branch in March 1820 that "the unexampled reduction in the value" of sugar was putting the Magnolia Grove plantation in danger of foreclosure, and that he would need an additional loan of $5,000 (about $113,000) to meet his wife's portion of the mortgage payment due to Davis.4 When the branch balked at this further investment, Mrs. Smith's Magnolia Grove partners pleaded with the Bank on her husband's behalf. Thompson warned that the "decision was probably made without knowing how important this loan would be towards your [the Bank's] security," while Wederstrandt informed them that Davis—who possessed the first mortgage on the property—"has arriv'd with the express design of seizing upon the estate & slaves if payment is not [End Page 386] punctually made."5 The Bank relented, extending to Dennis Smith another $5,000 loan secured by his wife's portion of the plantation and enslaved laborers and further endorsed by his brother John K. Smith.6 Yet Dennis Smith was not only overextended in Louisiana; he was also implicated in an embezzlement scandal that engulfed the Baltimore branch bank's cashier, James W. M'Culloh.7 By April 1822, with Smith embroiled in lawsuits and still unable to pay his Bank loans, the Baltimore branch took ownership of Mrs. Smith's one-third portion of the estate.8

That same fall of 1822, Helen Wederstrandt wrote to the New Orleans branch cashier, pleading that the Bank assist her husband, Philemon, who ran Magnolia Grove on behalf of the partners. In addition to his continued difficulties in meeting his portion of the mortgage payments to Davis...