In the first half of the 1830s many of the states of the Union engaged in an orgy of spending to fund internal improvements - principally canals and railroads. They financed most of the this spending by issuing or guaranteeing bonds, most of which were marketed and sold to investors in Europe, principally in Great Britain. After an initial market decline that began in 1836 and manifested itself in early 1837, the markets recovered somewhat in 1838, only to collapse again into a deeper and more long-lasting depression beginning in 1839.
In the typical state project, revenues from the anticipated improvements (e.g., canal tolls or railroad freight charges) had optimistically been expected to fund payment of interest and ultimately repayment of the notes; the state guarantees would never be called on. The Panic of 1837 and ensuing depression resulted in a collapse in revenues, assuming they had ever been realistic. British and European bondholders demanded that the states honor their guarantees, while states realized that they could not do so without imposing unprecedented and ruinous taxation on their residents.
In the aftermath, during the early 1840s, no fewer than eight states (Michigan [about $5MM], Indiana [$10MM], Maryland [$14MM], Arkansas, Illinois, Mississippi, Pennsylvania [$40MM] and Louisiana [$24MM]) and one territory (Florida) defaulted on bonds with a face value totaling in excess of $100,000,000 and repudiated their guarantees. British and other European bondholders were financially devastated. And they lacked any legal recourse. A combination of the Eleventh Amendment and state sovereign immunity made it impossible for foreigners to sue the states in either federal or state court. The federal government was not a party to the transactions, lacked the power to intervene and, under president John Tyler, was not inclined to do so in any event. The foreign holders were reduced to hurling invective at the states that had stolen their money.
All of which brings me to the point of this post, a wrenching but (softened by the passage of almost 170 years) amusing protest published in the London Literary Gazette in January 1845, to be sung to the tune of Yankee Doodle:
Yankee Doodle borrows cash,
Yankee Doodle spends it,
And then he snaps his fingers at
The jolly flat who lends it.
Ask him when he means to pay,
He shews no hesitation,
But says he'll take the shortest way,
And that's repudiation!
As a bonus: Did you know that Charles Dickens' December 1843 A Christmas Carol contains a brief reference to "a mere United States' security" as a synonym for worthless?
When Scrooge awoke, it was so dark, that looking out of bed, he could scarcely distinguish the transparent window from the opaque walls of his chamber. He was endeavouring to pierce the darkness with his ferret eyes, when the chimes of a neighbouring church struck the four quarters. So he listened for the hour.
To his great astonishment the heavy bell went on from six to seven, and from seven to eight, and regularly up to twelve; then stopped. Twelve! It was past two when he went to bed. The clock was wrong. An icicle must have got into the works. Twelve!
He touched the spring of his repeater, to correct this most preposterous clock. Its rapid little pulse beat twelve: and stopped.
“Why, it isn’t possible,” said Scrooge, “that I can have slept through a whole day and far into another night. It isn’t possible that anything has happened to the sun, and this is twelve at noon!”
The idea being an alarming one, he scrambled out of bed, and groped his way to the window. He was obliged to rub the frost off with the sleeve of his dressing-gown before he could see anything; and could see very little then. All he could make out was, that it was still very foggy and extremely cold, and that there was no noise of people running to and fro, and making a great stir, as there unquestionably would have been if night had beaten off bright day, and taken possession of the world. This was a great relief, because “three days after sight of this First of Exchange pay to Mr. Ebenezer Scrooge or his order,” and so forth, would have become a mere United States’ security if there were no days to count by.
Alasdair Roberts' America's First Great Depression: Economic Crisis and Political Disorder After the Panic of 1837 is the source for both.
About the illustration, entitled New Edition of MacBeth. Bank-oh's! Ghost:
Another satire on the Panic of 1837, again condemning Van Buren's continuation of predecessor Andrew Jackson's hard-money policies as the source of the crisis. Clay shows the president haunted by the ghost of Commerce, which is seated at the far right end of a table which he shares with a southern planter (far left) and a New York City Tammany Democrat. Commerce has been strangled by the Specie Circular, an extremely unpopular order issued by the Jackson administration in December 1836, requiring collectors of public revenues to accept only gold or silver (i.e., "specie") in payment for public lands. The ghost displays a sheaf of papers, including one marked "Repeal of the Specie Circular," and notices of bank failures in New Orleans, Philadelphia, and New York. Van Buren recoils at the sight of the specter, exclaiming, "Never shake thy gory locks at me, thou can'st not say I did it." Jackson, in a bonnet and dress made of bunting, turns away saying, "Never mind him gentlemen, the creature's scared, and has some conscience left; but by the Eternal we must shake that out of him." Planter (a note reading "Cotton Planters Specie in "Purse." Alabama" protrudes from his pocket): "No credit. Huzza!!" Tammany Irishman (raising a glass): "Down with the Bank!!"