Jackson’s “War” on the BUS
Having deflated the Nationalist Republicans’ programs on internal improvements and tariffs, there remained only one plank of their platform to be dismantled, the second Bank of the United States. Again, a great mythology arose over Jackson and his attitude toward the BUS. Traditional interpretations have held that the small-government-oriented Jackson saw the BUS as a creature in the grip of “monied elites” who favored business interests over the “common man.” A “hard money” man, so the story goes, Jackson sought to eliminate all paper money and put the country on a gold standard. Having a government-sponsored central bank, he supposedly thought, was both unconstitutional and undesirable. At least that was the generally accepted story for almost a century among American historians.81
Nicholas Biddle had run the bank expertly for several years, having replaced Langdon Cheves as president in 1823. A Philadelphian, Biddle had served as a secretary to the U.S. minister to France, edited papers and helped prepare the documents detailing the Lewis and Clark Expedition’s history, and briefly served in the Pennsylvania state senate. Biddle’s worldliness and savoir faire immediately branded him as one of the noxious elites Jackson fretted about. But he intuitively knew banking and finance, even if he had little practical experience. He appreciated the BUS’s advantages over state-chartered banks and used them, yet all the while cultivating good relationships with the local commercial banks.
What made Biddle dangerous, though, was not his capabilities as a bank president, but his political powers of patronage in a large institution with branches in many states—all with the power to lend. Only the Post Office and the military services, among all the federal agencies, could match Biddle’s base of spoils. Biddle also indirectly controlled the votes of thousands through favorable loans, generous terms, and easy access to cash. Whether Biddle actually engaged in politics in such manner is irrelevant: his mere capability threatened a man like Jackson, who saw eastern cabals behind every closed door. Thus, the “bank war” was never about the BUS’s abuse of its central banking powers or its supposed offenses against state banks (which overwhelmingly supported rechartering of the BUS in 1832). Rather, to Jackson, the bank constituted a political threat that must be dealt with.
Jackson sided with the hard-money faction, as governor of Tennessee having strongly resisted both the chartering of state banks and placement of a BUS branch in his state. But that was in the early 1820s, on the heels of the panic. His views moderated somewhat, especially when it came to the idea of a central bank. Jackson’s hatred of a central bank is exaggerated.82 Like Thomas Hart Benton, William Gouge, and Thomas Ritchie of the Richmond Enquirer, Democrats and Jackson supporters had reputations as hard-money men. Jackson himself once heaped scorn on the paper money he called rags emitted from banks. Still, a decade’s worth of prosperity had an impact on Jackson’s views, for by 1829, when he started to consider eliminating the BUS, he had asked his confidant Amos Kendall to draft a substitute plan for a national bank.83 Few historians deal with this proposal: Jackson’s best biographer, Robert Remini, dedicates approximately one page to it, but he misses the critical implications. Other noted writers all but ignore the draft message.84 The president did not intend to eliminate central banking entirely, but to replace one central bank with another in a continuation of the spoils system. Why was the current BUS corrupt? Because, in Jackson’s view, it was in the hands of the wrong people. As governor, he had not hesitated to write letters of recommendation to staff the Nashville branch of the BUS, using the same arguments—that the “right” people would purge the system of corruption. The existing BUS was corrupt, in Jackson’s view, only partly because it was a bank; what was more important was its heritage as the bank of the panic, the bank of the elites.
Given the intensity to which pro-Jacksonian authors cling to the antibank Andrew Jackson, let the reader judge. According to his close associate James Hamilton, Jackson had in mind a national money: his proposed bank would “afford [a] uniform circulating medium” and he promised to support any bank that would “answer the purposes of a safe depository of the public treasure and furnish the means of its ready transmission.” He was even more specific, according to Hamilton, because the 1829 plan would establish a new “national bank chartered upon the principles of the checks and balances of our federal government, with a branch in each state, and capital apportioned agreeably to representation…. A national bank, entirely national Bank, of deposit is all we ought tohave.”85
Was the same man who had proposed a “national” bank with interstate branches capable of furnishing the “ready transmission” of national treasure also eager to eliminate state banks? It seems unlikely, given his supposed affinity for the rights of states to exercise their sovereignty. Nothing in the U.S. Constitution prohibited a bank (or any other business, for that matter) from issuing and circulating notes. However, based on Jackson’s willingness to crush state sovereignty in the Indian Removal and his repudiation of South Carolina’s nullification, it is clear that to Andrew Jackson the concept of states’ rights meant what Andrew Jackson said it meant. More disturbing, perhaps, and more indicative of his true goals, was a series of measures introduced by the Democrats to limit the country to a hard-money currency. Again, historians concentrated on the hard-money aspect of the bills while missing the broader strategy, which involved a massive transfer of state power to the federal government.86 Jackson’s forces in Congress began their assault seeking to eliminate small bills, or change notes, which in and of themselves testified to the shocking shortage of small coin needed for change. Prohibition of small notes constituted the first step in the elimination of all paper money to these zealots, and would have moved the control of the money supply from market forces to a federal, central bank such as Jackson proposed.87
Whatever his final intentions, Jackson needed to eliminate the BUS as both an institutional rival to whatever he had planned and as a source of political patronage for his foes. Between 1829, when he had asked Kendall to draft his own plan, and 1833, Jackson and his allies attempted to work out a compromise on the existing BUS recharter effort. They outlined four major areas where the bank could alter its charter without damaging the institution.88 In fact, thanks to the advice of Clay and Webster, Biddle was assured that the BUS had enough support in Congress that a recharter would sail through without the compromises. Probank forces introduced legislation in 1832 to charter the BUS four years ahead of its 1836 expiration, no doubt hoping to coordinate the effort with the presidential campaign of Henry Clay, who had already been nominated as the choice of the National Republicans to run against Jackson. The gauntlet had been thrown.
Many bank supporters thought Jackson would not risk his presidential run by opposing such a popular institution, but Old Hickory saw it as an opportunity to once again tout his independence. In May 1832, typically personalizing the conflict, Jackson told Van Buren, “The Bank is trying to kill me. But I will kill it.”89 When the BUS recharter passed in Congress, Jackson responded with a July veto. In his eight-year term, Jackson issued more vetoes than all previous presidents put together, but the bank veto, in particular, represented a monumental shift in power toward the executive. Other presidential vetoes had involved questions surrounding the constitutionality of specific legislation, with the president serving as a circuit breaker between Congress and the Supreme Court. No longer. In a message written by Roger B. Taney of Maryland, Jackson invoked thin claims that the bank was “unnecessary” and “improper.” Of course, Marshall’s Court had already settled that issue a decade earlier. Jackson’s main line of attack was to call the bank evil and announce that he intended to destroy it. Clay misjudged the appeal of Jackson’s rhetoric, though, and printed thousands of copies of the veto message, which he circulated, thinking it would produce a popular backlash. Instead, it enhanced Jackson’s image as a commoner standing against the monied elites who seemingly backed the Kentuckian. Jackson crushed Clay, taking just over 56
percent of the popular vote and 219 electoral votes to Clay’s 49, but voter turnout dropped, especially in light of some earlier state elections.90
Upon winning, Jackson withdrew all federal deposits from the BUS, removing its main advantage over all private competitors. Without deposits, a bank has nothing to lend. Jackson then placed the deposits in several banks whose officials had supported Jackson, and while not all were Democrats, most were. These “pet banks” further revealed the hypocrisy of Jackson’s antibank stance: he opposed banks, as long as they were not working for his party. Jackson’s disdain for the law finally met with resistance. His own secretary of the treasury, Louis McLane, who had supported Jackson in his “war,” now realized the dangerous constitutional waters in which the administration sailed. When Jackson instructed him to carry out the transfer of the deposits, McLane refused, and Jackson sacked him. The president then named William J. Duane to the post (which required senatorial approval by custom, though not according to the Constitution). Jackson ignored congressional consent, then instructed Duane to remove the deposits. Duane, too, viewed the act as unconstitutional and refused. Out went Duane, replaced by Jackson loyalist Roger B. Taney, who complied with Old Hickory’s wishes, although Jackson had finally persuaded Congress to pass the Deposit Act of 1836, giving the actions a cloak of legitimacy. As a reward, Taney later was appointed chief justice of the United States. All in all, the entire bank war was a stunning display of abuse of power by the chief executive and demonstrated a willingness by the president to flout the Constitution and convention in order to get his way. At the same time, it reaffirmed the adage that the American people usually get what they deserve, and occasionally allow those who govern to bend, twist, or even trample certain constitutional principles to attain a goal.
What occurred next was misunderstood for more than a century. Biddle called in loans, hoping to turn up the heat on Jackson by making him appear the enemy of the nation’s economy. A financial panic set in, followed by rapid inflation that many observers then and for some time to come laid at the feet of the bank war. Without the BUS to restrain the printing of bank notes, so the theory went, private banks churned out currency to fill the void left by Biddle’s bank. A new type of institution, the “wildcat” bank, also made its first appearance. Wildcat banks were in fact “free banks,” organized by state general incorporation statutes to relieve the burden on the state legislatures from having to pass special chartering ordinances to allow banks to open. In modern times, virtually no businesses need special legislation from government to operate, but the free bank and general incorporation laws had only just appeared in the 1830s. Supposedly, the wildcat banks printed up far more money than they had specie in vault, but established branches “where a wildcat wouldn’t go” made it nearly impossible to redeem the notes. Or, in other words, the banks printed unbacked currency. Again, the theory held that without the BUS to control them, banks issued money willy-nilly, causing a massive inflation.
Much of this inflation, it was thought, moved westward to purchase land, driving up land prices. By the end of Jackson’s second term, rising land prices had become, in his view, a crisis, and he moved to stem the tide by passing the Specie Circular of 1836, which required that all public land purchases be with gold or silver. Attributing the rising prices to speculation, Jackson naturally was pleased when the boom abruptly halted.
Economist Peter Temin found that for more than a century this consistent explanation of what happened after Jackson killed the BUS remained universally accepted.91 The tale had no internal conflicts, and the technology did not exist to disprove it. But after the availability of computing tools, economists like Temin could analyze vast quantities of data on gold and silver movements, and they came to a startlingly different conclusion about Jackson’s war—it meant little. What happened was that large supplies of Mexican silver had come into the country in the late 1820s over the newly opened Santa Fe Trail, causing the inflation (increasing prices), and this silver flowed into the trade network, financing porcelain and tea exchanges with China and ending up in England after the Chinese bought British goods. The British, in turn, lent it back to American entrepreneurs. But in the early 1830s, with the Texas revolt, the Mexican silver dried up, and so did the flow of silver around the world that finally found its way into English vaults. With the silver reserve disappearing, the Bank of England raised interest rates, which spun the U.S. economy into a depression. Temin proved that the BUS did not have the size or scope of operations to affect the American economy that historians had previously thought. No matter how petty and ill conceived Jackson’s attack on the bank was, he must be absolved of actually causing much direct harm to industrial growth—although new research suggests that his redistribution of the surplus probably contributed to the damage in financial markets.92 On the other hand, whatever benefits his supporters thought they gained by killing “the monster” were imagined.
Jackson and Goliath
By the end of his second term, Old Hickory suffered constantly from his lifetime of wounds and disease. Often governing from bed, the Hero of New Orleans had become a gaunt, skeletal man whose sunken cheeks and white hair gave him the appearance of a scarecrow in a trench coat. Weak and frail as he may have been, when he left office, Andrew Jackson had more totally consolidated power in the executive branch than any previous president, unwittingly ensuring that the thing Van Buren most dreaded—a powerful presidency, possibly subject to sectional pressures—would come to pass. His adept use of the spoils system only created a large-scale government bureaucracy that further diminished states’ rights, overriding state prerogative with federal might.
Jackson’s tenure marked a sharp upward spike in real expenditures by the U.S. government, shooting up from about $26 million when Old Hickory took office to more than $50 million by the time Van Buren assumed the presidency.93 In addition, real per capita U.S. government expenditures also rose suddenly under Jackson, and although they fell dramatically at the beginning of Van Buren’s term, by 1840 they had remained about 50 percent higher when Van Buren left office than under Adams. The levels of spending remained remarkably small—about $3 per person by the federal government from 1800 to 1850. If optimistic claims about personal income growth during the era are accurate, it is possible that, in fact, government spending as a percent of real per capita income may have fallen. But it is also undeniable that the number of U.S. government employees rose at a markedly faster rate from 1830 to 1840, then accelerated further after 1840, although per capita government employment grew only slightly from 1830 to 1850. The best case that can be made by those claiming that the Jacksonian era was one of small government is that relative to the population, government only doubled in size; but in actual terms, government grew by a factor of five between the Madison and Harrison administrations. In short, citing the Jackson/Van Buren administrations as examples of small government is at best misleading and at worst completely wrong.
More important, no matter what had happened immediately, the Jacksonians had planted the seeds of vast expansions of federal patronage and influence. Jackson’s Democrats had prefigured the New Deal and the Great Society in viewing the federal government—and the executive branch especially—as the most desirable locus of national power.
CHAPTER SEVEN
Red Foxes and Bear Flags, 1836–48
The End of Jackson, but not Jacksonianism
When Andrew Jackson polished off the BUS, he piously announced: “I have obtained a glorious triumph…and put to death that mammoth of corruption.”1 It was an ironic and odd statement from a man whose party had now institutionalized spoils and, some would say, a certain level of corruption that inevitably accompanied patronage. By that time, Jackson’s opponents recognized as much, labeling him ‘King Andrew I,’ without much apparent effect on his popularity. Judging Jackson’s clout, though, especially in light of the Panic of 1837, is problematic. His protégé was unceremoniously tossed out of office after one term, becomi
ng the third one-term president in the short history of the Republic.
Old Hickory, of course, had named his vice president, Martin Van Buren, as his successor. In a sense, Van Buren had rigged the system to ensure his election when he crafted the Democratic Party structure years earlier, using Jackson as the pitch man to get the party off the ground. Van Buren was full of contradictions. He stood for liberty and later moved to the Free Soil Party. Yet before his departure, his Democratic Party structure required the quelling of discussions of slavery. He sided with free enterprise, except when it involved the freedom to start and operate banks, and he had voted for tariffs in the past. Associated with small government, he supported public funding of the early national road. Ultimately, the Red Fox of Kinderhook, as Van Buren was also known, led a third antislavery party, but it marked a deathbed conversion of sorts, since he had ensured the dominance of a proslavery party in national politics.
Squaring off against Van Buren and the Democrats was the new opposition party, the Whigs, who drew their name from the English and American Revolutionary opponents to the Tories. These Whigs were hardly the laissez-faire, limited-government firebrands who had brought about the Revolution: they supported a high protective tariff, a new national bank, and federal subsidies for internal improvements. Some Whigs were abolitionists; some advocated temperance; and many came from Protestant evangelical backgrounds, such as Presbyterians, Baptists, and Congregationalists.
A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror Page 37