Samuel Hermann and the Panic of 1837

In the 1830s, New Orleans was a bustling city full of social and economic promise. As the cotton market boomed with the advent of the steamship and the growth of the global market, the only place for men like Samuel Hermann to go was up. An immigrant from Germany in 1804, Hermann first settled on the German Coast of Louisiana, where he began to make his fortune as a cotton factor. As such, Hermann was the middleman between the plantations across the Mississippi River valley and the rest of the world. Hermann knew how to utilize the system of credit and delayed communication between New York and London to his advantage in order to turn a profit. Through the exchange of goods and insight into the local market, Hermann was able to get lines of credit he could extend to the plantations in exchange for lower prices on cotton. At this point, Hermann would purchase the cotton in advance to later be shipped and sold via his personal shipping line in Liverpool for a significant profit.

Jean Joseph Vaudechamp (1790-1864), Samuel Hermann, 1834, oil on canvas. Collection of the Hermann-Grima + Gallier Historic Houses, 1974.11.1. Photo courtesy Hermann-Grima + Gallier Historic Houses.

By the 1820s, Hermann was the head of a vast network of cotton factors, making him one of the wealthiest men in New Orleans and, so well known that his hometown paper in Germany recounted his “rags to riches” story. In 1831 he built a Federal-style mansion on St. Louis Street to showcase his fortune and his ties to American commerce.  Filling their home, a “showcase of American Promise,” with luxury goods and guests, the Hermanns became known for their lavish parties. The two oldest sons followed their father and became successful merchants, serving on the boards of various banks and insurance companies.

There are, of course, two sides to every story, and unfortunately for Hermann the wealth he amassed as a cotton factor became completely tied up in credit. Everything he owned, even his house, was based on his credit and the confidence that he would be able to support his purchases. He relied on the slow communication in order to pay back his debts and obtain more credit so that he could extend lines and buy more. Hermann had no reason to question this system, as it had worked for a number of years in his favor. However, things would slowly begin to change, and by 1837 he would find himself in financial ruin.

The “Panic of 1837” really began in 1836 with a series of interconnected factors resulting in a market collapse. During the summer of that year, the Bank of England noticed that much of their specie (gold and silver) was flowing out of their bank and into the United States. Concerned by these developments, the Bank of England raised their interest rates in order to generate more specie, which in turn caused American banks to increase their interest rates. Under other circumstances, this could have worked, but recent economic policies put in place by Andrew Jackson led to further financial trouble. 

“The Times,” (1837) Printed & published by H.R. Robinson. Courtesy  of the Library of Congress.

Jackson’s failure to renew the Bank of the United States led to many banks using unsafe lending practices in their attempt to try to fill the gap left by the BUS. This change, coupled with the 1836 Deposit and Distribution Act, which moved specie away from the commercial centers on the east coast and into the interior, made it harder for banks to back up loans and credit, adding to the unsafe lending. At the same time, the cotton market in England was falling quickly, as much as twenty-five percent. For many merchants and banks, this sudden change in the economic situation would be disastrous.

As the fall of 1836 approached, the Hermanns had every reason to be confident. Despite being unable to get support from various European banking firms like the Rothschild family, Samuel Hermann was optimistic about a successful selling season, unaware of the full extent of the collapse of the cotton market.

This optimism would be dimmed on an appropriately stormy night in early December when a ship owned by Hermann, sank in the Mississippi River. They lost thousands of dollars in endorsed bills, cotton, and the ship itself. The loss was a huge setback for the Hermanns; since all the cotton was bought in advance, they now had to absorb their losses and refill their stock. Another blow was dealt when the insurance company refused to cover the loss of the $60,000 ship or that of the cotton and bills.

The Historic New Orleans Collection, Bequest of Richard Koch.

By January, the Hermanns were staying afloat by endorsing each other’s paper bills, assuring creditors and banks that they had money. Their debt began to pile up, and they owed anywhere from three to six million dollars, which accounted for six to twenty percent of Louisiana’s banking capital. The Hermanns met with banks to ask for loans and loan extensions, but by that point the effects of the Bank of England’s new policies and the fallen market had hit New Orleans, forcing the Hermann Briggs Company to declare “failure” on March 8th, 1837. This would set off a tidal wave off failures across the country when the Joseph Company in New York declared failure the next day, citing the Hermanns as the reason. While the Josephs were already facing a number of problems at the time of their failure, they were able to push their blame on the Hermanns, and the country pointed to the Hermanns and New Orleans for its economic troubles.

Newspaper clipping, True American, April 1, 1837. From the Library of Congress, Chronicling America: Historic American Newspapers site, https://chroniclingamerica.loc.gov/lccn/sn83016527/1837-04-01/ed-1/seq-2/

From this point on the Hermann family was hemorrhaging money and were never able to fully recover. By 1839, they still owe two out of the original six million, and while they declare their intentions to fully pay everyone back, it would take the rest of their lives. In 1844, Hermann and his wife are near destitute and sell their beautiful mansion on St. Louis to Felix Grima. Grima, a public notary, made a fortune off of people like the Hermanns, who had to sell everything to recoup their losses. Hermann and his wife, never able to regain their former glory, move in with their daughter and her family, dependent on her charity for the rest of their lives.

 

 

Sources:

“Letter from Thomas Barrett.” The New York Herald, March 18, 1837.

“From the South Express News.” The New York Herald, March 23, 1837.

“The Failures.” True American, April 1, 1837.

Lepler, Jessica M. The Many Panics of 1837: People, Politics, and the Creation of a
Transatlantic Financial Crisis. New York: Cambridge University Press, 2013.

Roberts, Alasdair. America’s First Great Depression: Economic Crisis and Political Disorder after the
Panic of 1837. Ithaca: Cornell University Press, 2012.

Schweikart, Larry. Banking in the American South from the Age of Jackson to Reconstruction.
Baton Rouge: Louisiana State University Press, 1987.

 

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