After nearly a decade of increasing economic expansion, Mississippi’s economy began to fade in the mid-1830s. The worldwide Panic of 1837 contributed to the state’s economic collapse. To forestall a downturn, state legislators chartered a quasi-official state bank. Legislators felt certain that although other banks were collapsing, the Union Bank, with the backing of the State of Mississippi, would succeed.
When first proposed, the Union Bank charter passed without substantive opposition. Although the bank would function like other financial institutions chartered in the mid-1830s, the original enabling legislation contained a number of quirky features: only Mississippi property owners could purchase stock, although Mississippians who lacked sufficient cash to buy stock could receive eight-year loans to do so provided they had real estate or slaves to serve as collateral. The sale of stock was supposed to raise $500,000, and the state would raise the remainder of the capital by selling $15,500,000 in bonds.
In 1838 the Union Bank charter returned to the Mississippi legislature for approval. A curious clause in the state’s 1832 constitution required that successive legislatures approve bills that extended the financial backing of the state. Again, the charter passed, though a larger legislative coterie now claimed that creation of the bank constituted an extravagance during an economic depression. After approving the legislation, Gov. Alexander McNutt sought to allay opponents’ fears by authorizing a supplement to the charter requiring the state to purchase $5,000,000 in stock, money that was to be raised by the sale of 5 percent state bonds. The supplement effectively altered the relationship of the bank and the state, making the state a stockholder, not merely a backer.
The Union Bank opened in 1838, and its managers, like other bank managers in the 1830s, took great risks and used their position to gain and curry favor. Within two years, the public grew to loathe the bank. At the same time, the legislature became concerned about the continued existence of banks with inadequate specie reserves. In 1840 the legislature demanded that banking houses pay in gold and silver upon demand. Within two years seventeen banks closed for lack of specie, and Gov. McNutt questioned whether his signing of the supplemental charter was constitutional.
McNutt became an early advocate of repudiating state debts incurred in support of the Union Bank. In 1842 recently elected Gov. Tilghman Tucker signed an act authorizing the state not to pay money owed to holders of some $20,500,000 in state bonds. Throughout the 1840s the legislature debated incessantly whether to pay or repudiate state debts. In 1852 Mississippi’s High Court of Errors and Appeals ordered the state to pay its debts, but the legislature never appropriated funds to do so.
The saga of the state bonds sold to support the Union Bank continued. In the mid-1990s a group of bondholders, mostly British citizens, sued the state for nonpayment. The Mississippi Supreme Court reversed the earlier court decision.
The debate over the charter of the Union Bank and the state’s repudiation of debts to support it led to the development of a strong two-party political system in Mississippi. The faction that favored killing all banks and repudiation became the Democratic Party. It favored nonpayment of the debts because the bank, like all banks, was an institution designed to ensure the wealth of elites and because repayment of the debt would increase the tax liability of ordinary folk. Mississippi’s Whig Party, conversely, arose from among those who favored payment of the debt, arguing that that the state had pledged its faith in support of bonds sold to innocent purchasers and that repudiation thus constituted an immoral act that would ruin the credit of the state and its citizens. This two-party system did not survive much beyond 1850, but it suggested that Mississippi could develop a strong multiparty system of politics that revolved around something other than slavery or race.
- Bradley G. Bond, Political Culture in the Nineteenth-Century South, Mississippi, 1830–1900 (1995)
- Larry Schweikart, Banking in the American South from the Age of Jackson to Reconstruction (1987)
- Robert Cicero Weems Jr., “The Bank of the State of Mississippi: A Pioneer Bank of the Old Southwest, 1809–1844” (PhD dissertation, Columbia University, 1952)