Banking in Oklahoma before Statehood is not just a story of men sitting behind desks. Author Michael J. Hightower describes the riverboat trade in the Arkansas and Red River valleys and freighting on the Santa Fe Trail. Shortages of both currency and credit posed major impediments to regional commerce until storekeepers solved these problems by moving beyond barter to open ad hoc establishments known as merchant banks.
Banking went through a wild adolescence during the territorial period. The era saw robberies and insider shenanigans, rivalries between banks with territorial and national charters, speculation in land and natural resources, and land fraud in the Indian Territory. But as banking matured, the better-capitalized institutions became the nucleus of commercial culture in the Oklahoma and Indian Territories.
To tell this story, the author blends documentary historical research in both public and corporate archives with his own interviews and those that WPA field-workers conducted with old-timers during the New Deal. Bankers were never far from the action during the territorial period, and the institutions they built were both cause and effect of Oklahoma’s inclusion in national networks of banking and commerce. The no-holds-barred brand of capitalism that breathed life into the Oklahoma frontier has remained alive and well since the days of the fur traders. As one knowledgable observer said in the 1980s, “You’ve always had the gambling spirit in Oklahoma.”
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Banking in Oklahoma Before Statehood
By Michael J. Hightower
UNIVERSITY OF OKLAHOMA PRESSCopyright © 2013 University of Oklahoma Press, Norman, Publishing Division of the University
All rights reserved.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.
Thomas Jefferson to Albert Gallatin, Secretary of the Treasury
When dawn broke on October 19, 1781, General Charles Cornwallis and the eight thousand redcoats under his command were in a desperate situation. Behind them was the Chesapeake Bay, whose potential as an avenue of escape had been compromised ever since late August when the Count François-Joseph de Grasse sailed into Yorktown from Santo Domingo with his entire West Indian fleet. His sailors were reinforced by more than three thousand soldiers who served under the Marquis de Saint-Simon. The next month, the admiral Count de Barras used his eight sail of the line to transport the combined forces of Generals Washington and Rochambeau to the Virginia coast. Meanwhile, a detachment of American troops serving under the Marquis de Lafayette was positioned in Virginia, waiting for instructions.
Out of time and short on options, Cornwallis and his soldiers braced for the worst. It came with a vengeance when an allied army of nine thousand Americans under General Washington and seven thousand French under General Rochambeau launched their epic siege of Yorktown. With French naval forces positioned offshore to prevent the British from escaping, the fighting raged for three weeks until Cornwallis acknowledged the futility of his position. "Our numbers had been diminished by the enemy's fire," wrote a disconsolate General Cornwallis in his account of the Battle of Yorktown, "but particularly by sickness, and the strength and spirits of those in the works were much exhausted by the fatigue of constant watching and unremitting duty. Under all these circumstances I thought it would have been wanton and inhuman to the last degree to sacrifice the lives of this small body of gallant soldiers, who had ever behaved with so much fidelity and courage, by exposing them to an assault which, from the numbers and precautions of the enemy, could not fail to succeed."
At Cornwallis's command, soldiers representing the mightiest empire on earth laid down their arms. In a letter penned on October 20 to Sir Henry Clinton, the general described his defeat by upstart colonists on the banks of Chesapeake Bay. The general's letter began on a simple note that belied its momentous message: "I have the mortification to inform your Excellency that I have been forced to give up the posts of York and Gloucester, and to surrender the troops under my command, by capitulation, on the 19th instant, as prisoners of war to the combined forces of America and France." General Cornwallis closed his correspondence with assurances that His Majesty's soldiers' treatment at the hands of their enemies "has been perfectly good and proper," and that the French in particular were going out of their way to be gracious in victory. Americans had less reason to be kind to King George's soldiers who had turned so savagely against them.
Against all odds, General George Washington had led his ragtag army of citizen-soldiers to victory. The political revolution was over, or would be as soon as the belligerents could draft a formal termination of hostilities. But looming on the horizon was the need for a revolution of an entirely different sort—one that called for brains rather than brawn, and one that had little in the way of precedent that General Washington and his compatriots could call on for guidance. The question was simple: now that the revolutionaries had their country, what, exactly, were they going to do with it?
Of all the issues that spurred the generation of 1776 to action, none was more vexing than finance. For generations, economic life in the colonies had been fairly simple. In the South, planters cleared vast swaths of land to grow sugar, tobacco, rice, and indigo. The middle and northern colonies exploited the forests and seas for their bounty and cleared pastures for their livestock, while New England shipbuilders created what passed for large-scale industry. Frontiersmen at the fringes of civilization relied on their wits and primitive technologies to strip the land of its fauna and to cash in on the fur trade. Small-scale and cottage industries supplied what the land could not, and, for the most part, imports from England took care of the rest.
Economic links between scattered and largely self-sufficient settlements and the mother country were forged in the crucible of an economic theory known as "mercantilism." Accepted as gospel by most people who thought about such things, mercantilism held that gold and silver were the only genuine measures of wealth. Their suitability as media of exchange was due less to their rarity than to their homogeneity. (Even though gold and silver are susceptible to debasement by mixing them with lesser metals, there are easy ways, including water displacement and standardized weights, to distinguish between adulterated blocks of precious metals and blocks of specified purity.) Nations cursed by an absence of these natural resources had no choice but to maintain a favorable balance of trade with other countries and, in the process, accumulate as much precious metal as they could. A corollary of mercantilism was that nations could only grow rich at the expense of others. International trade was thus seen as a zero-sum game, and precious metals were the prizes.
But not everyone was on board with the conventional wisdom. Adam Smith, the Scottish apostle of free enterprise whose Wealth of Nations, published in 1776, was the first broadside to puncture mercantilist theory, extolled the virtues of an unfettered marketplace in which wealth came not from trade policies aimed at accumulating gold and silver but rather through the decision making of individuals motivated by enlightened self-interest. For Smith, the supply of and demand for all marketable items, from foodstuffs to the products of industry, found their natural equilibrium through the "invisible hand of the marketplace." Understanding and exploiting that basic principal, and not filling storerooms with gold and silver, was Adam Smith's ticket to prosperity.
Rejection of mercantilism and acceptance of what came to be known as free-market capitalism were far in the future when colonial militias pounded their swords into ploughshares and their leaders pondered their hard-won freedom. Of more immediate concern than abstract economic theory was one of mankind's most enduring conundrums: the lack of a universally accepted medium of exchange, known in the common vernacular as "money." Lacking gold and silver mines and left to their own devices, British colonists resorted to experimentation in their quest to establish a viable economy.
For all their variety, experiments in finance were torn from history's playbook. Since the settlement of Jamestown, bartering had been a mainstay of local economies. When media of exchange were needed to close complicated transactions, various and often ingenious items were drawn into circulation. Taking a cue from Native Americans, colonists in New England used cylindrical beads made from polished shells and fashioned into strings and belts, or wampum, to trade for items of value. So-called commodity money came in the form of such widely available resources as corn, cattle, and furs. In the southern colonies, tobacco and rice were used as money. Records from 1696 indicate that Virginia clergymen were paid an annual salary of 16,000 pounds of tobacco. By the early eighteenth century, legislatures had established tobacco as legal tender for paying taxes and public debts. Up north, students at Harvard College paid their tuition with livestock, meat, and whatever could be gleaned from family closets. One student who later became president of the college settled his bill in 1649 with "an old cow." He gave an account of the construction of the first college building, including an entry that might puzzle university registrars in our own day: "Received a goat 30s. plantation of Watertown rate, which died."
Frustrated colonists might have argued that money in the form of coins was scant improvement over goats and tobacco. Mercantilist policies prevented the creation of a satisfactory circulating medium in the colonies and forbade the export of coinage from Britain. What is more, the drain on specie resulting from the colonies' perennial trade imbalance meant that there was never enough coin to meet demand. The lack of specie, coupled with debtors' desire for credit and low interest rates, fueled colonists' insistence on creating banks. Indeed, royal governors' suppression of inflationary movements was a major cause of the American Revolution. Attempts to attract specie to the colonies were doomed to failure because, as might be expected, people fortunate enough to get their hands on coins hoarded them in their mattresses and buried them under bushes.
As the pace of trade quickened in the eighteenth century, Portuguese and Spanish coins became more common than English coins. The Spanish dollar—the nearest thing to an international medium of exchange—was the most stable and least debased coin in the Western world from the sixteenth to the nineteenth century, and it accounted for half the currency in the North American colonies; the rest consisted of a hodgepodge of British, French, and other national coinage brought in by travelers. Disorder descended into chaos as colonists not only retained the English system of pounds, shillings, and pence but also placed different values on whatever coins happened to be in circulation. The bottom line was that coins in colonial America were not nearly as liquid—that is, readily convertible into other assets—as their holders might have wished.
One solution for the dearth and complexity of coins was for colonists to manufacture their own. Not surprisingly in a land destined to turn entrepreneurship into an art form, a mint was established in Massachusetts, the only colony to do so. Its operations were confined to minting small silver pieces known as pine tree shillings. The mint became such an asset to the Massachusetts economy that the British government did not suppress its production of coins for three decades. Vigorous efforts to compel its managers to turn a portion of their profits over to the authorities met with little success, and the Crown closed the mint when Massachusetts's original charter was revoked in 1684. Attempts to establish mints in Virginia and Maryland never got off the ground.
Reduced to barter and commodity money and hamstrung by a dearth of coinage, colonists had their hands full just trying to maintain a viable economy. The exchange of goods and services was rendered even more troublesome by an absence of banks. This was no accident: British law effectively forbade the establishment of banks in the colonies, which left merchants in charge of basic banking functions. With ingenuity born of necessity, colonial merchants became lenders, exchange agents, shipowners—in short, whatever they needed to be in order to fulfill the financial responsibilities that are now shared by many different corporations under forms of restricted liability. In a pattern that followed the course of westward migration, self-reliant merchants managed their debts with the utmost care. Knowing that debtors' prisons awaited the profligate, one could not be too careful.
When all else failed, homo oeconomicus had yet another trick up his sleeve: paper money. Like today's Federal Reserve notes that function as IOUs and reside in our wallets, paper money—sometimes referred to as "bills of credit"—paid no interest. But they were certainly more convenient to carry around than goats and bales of tobacco, and they could be used to buy merchandise and pay taxes. The procedure for getting bills of credit into circulation was fairly straightforward: have a printer engrave various denominations on pieces of paper and induce government officials to sign them; use the notes to buy goods and services or lend them to people; and keep them in circulation by passing a law forcing people to accept them and by promising to redeem them in the future for taxes or loan payments. Of course, when more paper notes were in circulation than were needed for everyday transactions, they lost value—or, in economic jargon, they depreciated. Not surprisingly, folks weaned on frontier scarcity regarded paper money with deep skepticism. Just as alchemists invited derision for claiming they could turn hunks of metal into gold, moneymen with colorful paper dangling from their pockets were often dismissed as fools or perhaps even scoundrels bent on fleecing the public.
The world's first government paper money was printed in medieval China, where both paper and printing were invented long before their appearance in the West. Paper money's debut in North America came in 1690, when Massachusetts was raising money for King William's War, the American theater of the Nine Years' War. Even though notes were often discounted from their face value, they circulated as legal tender and were accepted as payment for taxes and other government obligations. A downside of paper money was that it drove coins out of circulation as people passed notes but hoarded their specie. Quite justifiably, they regarded coinage as a superior store of value.
Eventually, Massachusetts's experiment in paper money was replicated throughout the colonies, but it never replaced specie and commodity money. It did, however, provide people with a kaleidoscopic array of choices in financing the production, acquisition, and distribution of goods. Some currencies were interest-bearing notes. A fair number of them were legal tender, but many were not. There were notes that boreno interest and were accepted as legal tender for future obligations, but not for past debts. Some currencies were legal tender for all purposes. Others were receivable for public payments but not for transactions between individuals. In some instances, funds arising from taxation were pledged for the redemption of notes. Sometimes they were payable on demand; sometimes they were payable in the future. There were currencies issued by committees and currencies issued by designated officials. The smorgasbord varied not only from one colony to the next but also within colonies. In the 1730s, seventeen forms of legal tender were circulating in North Carolina. By 1740, every colony but Virginia was issuing paper money.
Printing paper money went into overdrive during the Revolution. Lacking the power to tax and unable coerce fractious colonies to fund the war effort, the Second Continental Congress printed negotiable bills of credit known as continentals. By 1779, continentals with a face value of some $225 million, a huge sum superimposed upon a preexisting money supply of $12 million, were in circulation. Meanwhile, states and even counties continued to print their own money. Inevitably, the outpouring of paper money spawned an inflationary spiral that sent continentals straight to the privy. Prices doubled in 1776, doubled again the next year, and doubled yet again the next. Between early 1779 and early 1781, prices rose nearly tenfold. Efforts to rein in prices by revaluation were of little use, and the phrase "not worth a continental" entered the American lexicon to describe plunging currency values.
Anyone who thought that freedom from Great Britain would be a panacea for a dysfunctional economy was in for a rude awakening. America launched its experiment in self-government with the Articles of Confederation. Adopted in 1781 to replace the ad hoc administration of the Second Continental Congress, the Articles of Confederation were supposed to unify the former colonies in a loose confederation of states without threatening their autonomy. But without the power to raise an army and levy taxes, the Articles of Confederation were more like the rules that govern today's United Nations than the basis for a sovereign state. Prescient observers recognized the need for a strong hand to guide the ship of state and called for a convention to revise the Articles of Confederation. Opposition came from former colonists who balked at trading an overseas tyrant for a homegrown one. No sooner had the dust settled at Yorktown than the sides squared off in what was to become the central paradox in American governance and its corollary in finance: the protection of democratic rights under the aegis of a central authority.
As if on cue to expose the weaknesses of the Articles of Confederation, a bankrupt farmer and former army captain from western Massachusetts, Daniel Shays, led more than a thousand embittered farmers toward Springfield to exchange their pitchforks for muskets and seize cannon, all as a prelude to forcing the state legislature to drop direct taxation and reduce court fees. The rebels were eventually scattered, and by the early spring of 1787, they no longer posed a threat to the Massachusetts government. Still, the lessons of Shays's Rebellion were not lost on delegates as they gathered for what came to be known as the Constitutional Convention. Anyone could see that a loose confederation of states could never stand up to internal threats, let alone threats from abroad, that were the price of nationhood. To maintain order at home and take its place in the community of nations, America needed a constitution with teeth, and a sound financial structure to support it. Otherwise, there would surely be more Daniel Shayses in America's future.
Excerpted from Banking in Oklahoma Before Statehood by Michael J. Hightower. Copyright © 2013 University of Oklahoma Press, Norman, Publishing Division of the University. Excerpted by permission of UNIVERSITY OF OKLAHOMA PRESS.
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Table of Contents
ContentsList of Illustrations,
Part I. The Early National Period, 1781–1863,
1. Bank Battles,
2. Free Banking,
Part II. The Indian Territory to 1889,
3. The Riverboat Frontier,
4. Crossed over the Range,
5. Territorial Trading,
Part III. The Twin Territories, 1890–1907,
7. Twilight of the Frontier,
8. Bust and Boom,
9. A Happy Medium,
10. The Scramble,
11. The New Land of Promise,
12. Taking Stock,
13. Other People's Money,
Most Helpful Customer Reviews
Lest anyone be fooled by the small scope of banking history indicated by the title, Michael Hightower's book actually begins with the War of Independence, with the realization there simply was no banking structure in our infant nation. Its development would depend on creation of the Treasury Department in 1789 and the likes of Thomas Jefferson, Alexander Hamilton, and the next cadre of famous minds. Only four banks existed in 1790. Fast forward to the "last frontier" and pending settlement of the Great Plains, more specifically the Twin Territories - the Oklahoma Territory consisting of the western portion of the future state, and the Indian Territory in essentially the eastern half. Riverboat trade, real merchant banking (merchants provided credit in the absence of banks in the territories), make-do and hastily organized sheds that included old barrels and rubber boots as "depositories" and ultimately legally chartered banks that hung out their shingles and actually advertised for business, usually with scant capital but large dreams; these were the stories of entrepreneurship that spawned the industry as we know it today. Many banking institutions have bred their way to growth and profitability in Oklahoma, and many have failed even when once regarded as pinnacles of their industry. But this book is not really about names, places and statistics. It's a chronicle of the dreams and ambitions of people who sacrificed much, took great risks and succeeded in a profession they maybe didn't even intend to undertake. Cases in point. My great grandfather C. C. Hightower left Georgia in 1868 at the age of two with his family, grew up in North Texas, moved north to Altus, began a career as a merchant and ultimately became a bank president there. My grandfather W. E. Hightower grew up riding horses and playing football on the plains of Old Greer County when it still was part of Texas. He became a bank president in Oklahoma City. My other great grandfather, F. P. Johnson left Mississippi for good and took the train to Oklahoma City six years after the Run on the Unassigned Lands in 1889; within 20 years he was a bank president. A common theme among many who took widely varied routes to similar, if at times, unanticipated destinations. Their journeys are the stories. Enjoy the book and look for the sequel next year. Written by an Oklahoma banker gpjh