Jackson also believed that, in light of the importance of states’ rights in protecting liberty, a national bank was unconstitutional. The Supreme Court eventually disagreed with him. Richard Timberlake explains why this belief—that a national bank posed the threat of a dangerous centralization of political power—was so pervasive at the time: “The states … were properly jealous and fearful of encroachment by the federal government. Since a central bank would necessarily be a federal bank and would maintain and operate state branches from a distant center, proponents of states’ rights found opposition to a national bank almost mandatory.”4
Jackson feared that a central bank would be controlled by Northern bankers and would be used to manipulate politics, to the detriment of the economy and the public. Remini points out that the strongest support for the bank came from New England, whereas the fiercest opposition originated in the South.
Jackson had good reason to fear a politically manipulated central bank. The first president of the BUS was a U.S. Navy captain named William Jones, who had no banking experience and who had just gone personally bankrupt. He was politically well connected, however, and was awarded the job despite his complete lack of credentials. In The Panic of 1819, economist Murray Rothbard blamed Jones for creating the “panic,” America’s first serious depression.5
The bank’s second president was Nicolas Biddle, who continued to politicize it. Remini documents how Biddle granted below-market interest rate loans and “consulting contracts” to members of Congress who promised to support the bank. These loans and “consulting fees” were essentially political kickbacks paid with taxpayers’ dollars deposited in the BUS. Jackson’s treasury secretary Roger B. Taney, the future chief justice of the United States, complained of the bank’s “corrupting influence” and its “patronage greater than that of the government.” What he probably had in mind was the sort of shenanigans documented by Henry Clay biographer Maurice Baxter in his book Henry Clay and the American System. Clay left Congress for three years beginning in 1822 after having incurred some $40,000 in personal debt to become the general counsel of the BUS. His income from the bank “apparently amounted to what he needed to pay off his personal debts,” wrote Baxter. “When he resigned to become secretary of state in 1825, he was pleased with his compensation.”6
Another prominent Whig, Daniel Webster, did not even bother to resign from Congress before collecting bribes and kickbacks from the BUS. Baxter writes of how Webster simply demanded a “retainer” from Biddle, “If it be wished that my relation to the Bank should be continued.”7
Jefferson—and the Jeffersonians—fiercely opposed a nationalized bank, which they thought would be corrupting and economically destabilizing. They were right; Lincoln and the Whigs were wrong.
Biddle further proved Andrew Jackson’s charges of political corruption and manipulation to be true when, during the 1828 national election campaign, he spent more than $100,000 of the bank’s deposits in support of Jackson’s political opponents; promised BUS money to friendly politicians to spend on “internal improvements” in their districts and states in return for their votes; paid for the printing of Henry Clay’s speeches in support of the BUS; and paid for newspaper ads that promoted himself and the bank and attacked Jackson.
When the U.S. Supreme Court issued an opinion that the BUS was constitutional, Jackson essentially said “thank you for your opinion, but my opinion is different—and equally valid.” At that time the Court was not yet the final arbiter of constitutionality, as it has been since 1865. In response to Justice Marshall’s opinion on the bank, Jackson said this:
To this conclusion I cannot assent. Congress and the president as well as the Court must each for itself be guided by its own opinion of the Constitution … the opinion of the judges has no more authority over Congress than the opinion of Congress has over the judges, and on that point the president is independent of both. The authority of the Supreme Court must not, therefore, be permitted to control the Congress or the executive when acting in their legislative capacities.8
Jackson proceeded to defund the Bank.
The rhetorical battle over a central bank would continue on for the next several decades, with the likes of Clay, Webster, and Lincoln advocating a reinstitution of the bank on the one hand, and such Jeffersonians as Calhoun and President John Tyler on the other, in opposition.
LINCOLN’S ROLE IN AMERICA’S
THIRTY-YEAR BANK WAR
The demise of the BUS led to the creation of a new banking system known as the Independent Treasury System. It was established in 1840, ended in 1841 by the Whigs, who had temporarily gained power, and then reestablished in 1846. It would be the prevailing banking system of the United States until Lincoln’s administration ended it in 1862. The reign of the Independent Treasury System was known as the “free-banking era.”
One of the major issues of contention during the great banking debate was whether or not currency should be redeemable in gold or silver. The Jeffersonians said yes, it should be, as a means of limiting the ability of banks to create inflation and to artificially boost the economy from time to time, creating boom-and-bust cycles in the economy. Money that was not redeemable in specie, asserted the Jeffersonians, was essentially counterfeit and would invariably lead to economic hardship.
The Whigs, and later the Republicans, were obsessed with solidifying their political power through patronage financed precisely by the printing of paper money that was not redeemable in gold or silver. They made nonsensical arguments that inflationary finance was somehow good for the nation’s economy, but such arguments were vacuous even to economists at the time.
Under the Independent Treasury System the only legally recognizable money was gold and silver coins; all currency was redeemable on demand in those two precious metals. Banks were largely incapable of inflating their currencies under this system, to the chagrin of the Whigs. If they did, and did not have enough gold and silver on hand, then they simply went bankrupt. That’s why such prominent economic historians as Jeffrey Hummel and Richard Timberlake have praised the system in their writings. Hummel has studied the free-banking era and has concluded that, though it had its flaws, it was the most stable banking system the U.S. has ever had.9 Timberlake concluded that the Independent Treasury System was perhaps the “optimal” monetary system within the framework of the gold standard, which the country was on at the time.
Like his political role model and party leader, Henry Clay, Lincoln was fiercely opposed to the Independent Treasury System, for it robbed the Whigs of the opportunity to finance their corporate welfare giveaways with paper money not backed by gold or silver. On December 26, 1839, he gave a speech in opposition to the system and in support of inflationary finance through the mechanism of what economists call “fiat money.” The long-winded speech was a fiery denunciation of the responsible policies of the Independent Treasury System, condemning it as guilty of generating economic instability, being administratively costly compared to other systems, an insecure depository of money, and prone to reducing the quantity of money in circulation. None of these charges turned out to be true.
Like other Northern Whigs, Lincoln was strongly opposed to sound money redeemable in gold.
Much of Lincoln’s speech was simply absurd. He claimed, for example, that requiring banks to hold reserves of gold or silver would lead to a situation where “all [will] suffer more or less, and very many will lose everything that renders life desirable.” Thus, to Lincoln the Independent Treasury was such a bad idea that it may well lead to a national suicide epidemic! Such is bound to be the case with many who lose “everything that renders life desirable.”
Lincoln was not a religious man, never joined a church, and never admitted to having become a Christian, but he was masterful at invoking religious rhetoric in his political speeches to audiences of believers. In this speech he said: “The Savior of the world chose twelve disciples, and even one of that small number, selected by superhuman wisdom,
turned out a traitor and a devil. And, it may not be improper here to add, that Judas carried the bag—was the Sub-Treasurer of the Savior and his disciples.”
The point here is that the Independent Treasury System, and its “Sub-Treasurer” was supposedly traitorous to the American public, just as Judas betrayed Jesus Christ. Just as eliminating Judas may have saved Jesus from persecution, Lincoln insinuated, so could America be “saved” (and all those suicides averted) by eliminating the Independent Treasury System and allowing a Whig government to print paper money like mad in order to finance its agenda of corporate welfare for canal- and railroad-building corporations.
About a year later Lincoln was in a leadership position in the Illinois legislature and repeatedly opposed proposals by the Democrats in the legislature to audit the Illinois State Bank. The bank had been bankrolling many unsuccessful and never-completed “internal improvement” boondoggles that Lincoln and the Illinois Whigs were responsible for. The last thing they wanted was an audit of the books.
Then, in December of 1840, the Illinois Democrats wanted to require the bank to make payments in gold and silver instead of paper money. Lincoln wanted desperately to avoid this outcome, so on the day the vote was to be taken to require specie redemption he bolted for the door and instructed his fellow Whigs to follow him. Without a quorum the legislature could not vote to adjourn, and the suspension of specie payment would continue a while longer.10 Lincoln quickly discovered the door had been locked and guarded at the instruction of the Democratic Party leadership, so he literally jumped out of the first-floor window, followed by his lemming-like Whig compatriots. Thereafter the Democrats in the legislature called him “Leaping Lincoln and his flying brethren.” The stunt failed; Illinois adopted honest money; and Lincoln and the Whigs were defeated once again.
In his book What Has Government Done to Our Money, economist Murray Rothbard clearly explained the significance of the phrase “suspension of specie payment” that was the source of all the conflict and controversy. This explanation clarifies just what it was that Abraham Lincoln and his fellow Whigs and Republicans were so doggedly determined to achieve for so many decades:
The bluntest way for government to foster … inflation is to grant banks the special privilege of refusing to pay their obligations, while yet continuing in their operation. While everyone else must pay their debts or go bankrupt, the banks are permitted to refuse redemption of their receipts, at the same time forcing their own debtors to pay when their loans fall due. The usual name for this is “a suspension of specie payments.” A more accurate name would be “license for theft,” for what else can we call a government permission to continue business without fulfilling one’s contract?11
With the success of the Independent Treasury System the Whigs were unable to deliver on their many promises of patronage. This is why Professor Timberlake remarked that, to Whigs like Lincoln, a national bank was nothing less than their reason for existing as a political party. They failed to “deliver” protectionist tariffs as well during the 1833–1853 period, and the party imploded. Constituencies who favored protectionism, corporate welfare, and national banking became Republicans.
When Lincoln became president, and the Southern Democrats had left the Congress, the old Whig coalition was finally entrenched in power. It immediately raised tariff rates ten times, commenced the building of a government-subsidized transcontinental railroad, and replaced the Independent Treasury System with a nationalized money supply. On February 25, 1862, the Legal Tender Act empowered the secretary of the Treasury to issue paper money (“greenbacks”) that was not immediately redeemable in gold or silver. The National Currency Acts of 1863 and 1864 created a system of nationally chartered banks that could issue bank notes supplied to them by the new comptroller of the currency, and placed a 10 percent tax on state bank notes (currency issued by private banks chartered by state governments) to drive them out of business and establish a federal monetary monopoly for the first time in American history. Although the printing of paper money that was not redeemable in specie amounted to legalized counterfeiting, the Secret Service was also created to police private counterfeiting. If there was to be counterfeiting, the U.S. government was to have a monopoly in it.
It was the Lincoln administration that finally nationalized the nation’s money supply, after a seventy-year political battle.
This ended once and for all the separation of money and state in America. As economist Murray Rothbard wrote in his treatise A History of Money and Banking in the United States, “In that way, the Republican Party, which inherited the Whig admiration for paper money and governmental control and sponsorship of inflationary banking, was able to implant the soft-money tradition permanently in the American system.”12 As the government’s paper money flooded the banks, “greenback” dollars became so devalued that by July 1864 they were worth only 35 cents in gold, even though they were not issued until mid-1863.
The Republican Party establishment created a system whereby almost all currency was issued by just a few Wall Street banks closely affiliated with the party. In The Greatest Nation on the Earth historian Heather Cox Richardson quotes Senator John Sherman as saying that the party’s objective was “to nationalize as much as possible, even the currency, so as to make men love their country before their states. All private interests, all local interests, all banking interests, the interests of individuals, everything, should be subordinate now to the interest of the Government.” This statement could not possibly be any further away from Jefferson’s “that government governs best which governs least” philosophy. The Republicans, including Lincoln, clearly saw the nationalization of the money supply as an essential weapon in their crusade to abolish Jeffersonianism, centralize governmental power in Washington, D.C., and finally implement the Hamiltonian system of protectionism, national debt, nationalized banking, and corporate welfare.
A nationalized money supply helped transform America from a constitutional republic to an empire.
The sponsor of the banking legislation in the U.S. House of Representatives was Congressman Elbridge G. Spaulding, a banker from Buffalo, New York. Spaulding rejoiced that the new monetary system would finally clear the way for unlimited patronage spending by his party, something that politicians like himself (and Lincoln) had been crusading for for many years.
Richardson quotes a New York Times editorial on March 9, 1863, that celebrated this long-sought political victory. “The legal tender act and the national currency bill crystallized … a centralization of power, such as Hamilton might have eulogized as magnificent.”13
Kentucky Democrat Lazarus Powell was not as enthusiastic, writes Richardson. “The result of this legislation is to utterly destroy the rights of the states. It is asserting a power which if carried out to its logical result would enable the national Congress to destroy every institution of the States and cause all power to be concentrated here [in Washington, D.C.].”14 Lincoln, Sherman, Stevens, and other Republican Party luminaries must have been smiling and nodding their heads in approval upon hearing this remark.
The Party of Lincoln set out to fundamentally transform the American government from a decentralized confederacy of sovereign states to a consolidated, monolithic empire that could interfere with the affairs of other nations. They succeeded, and the nationalization of the money supply was always considered to be an indispensable component of their success. As Richardson further explains: “By 1863 the Republicans envisioned a dominant international role for a unified American nation, and Sherman promised that the bank bill, with its implicit strengthening of the national government, would advance that goal.”15 These Republicans were “building a new economic role for an increasingly powerful national government, permanently involving it in the country’s monetary affairs.” That’s why Abraham Lincoln deserves the designation of “the great inflationist” along with all of his other titles.
PART III
The Politics of the
Lincoln Cul
t
15
Making Cannon Fodder
In his book Making Patriots, Walter Berns of the American Enterprise Institute in Washington, D.C., argues that the traditional American philosophy of individualism, with its dictum that the role of government is to secure inalienable rights to life, liberty, and the pursuit of happiness for all citizens, creates a serious dilemma for the American state. The dilemma is that young people who are primarily concerned with pursuing their own education and careers, and raising their families, will not be sufficiently motivated to join the military and risk their lives for “abstract ideas” that, says Berns, are bigger and more important than the individual lives of America’s youth.
“We cannot be indifferent to the welfare of others,” writes Berns, no matter where in the world those others may reside. Consequently, America’s youth must be prepared, or so he says, to sacrifice their lives not in defense of their own country but “for the welfare of others” all over the globe. Editorialists like Berns apparently think of themselves as more or less philosopher kings who will decide which parts of the globe are in need of “salvation” at the hands of the U.S. military. They want to send the nation’s youth to fight and die for these abstract causes (like “democracy in the Middle East”), while they remain safe and sound in their academic or think tank offices.
The dilemma, says Berns, is how to motivate America’s youth to become such sacrificial lambs for the state. The answer is to devise a new “civil religion” so that young people will think of themselves as “religious” crusaders as they march off to war. Not genuine religion, but a religion that worships the state and its dictates, as defined by gatekeeping intellectuals like Berns.
Lincoln Unmasked Page 11