Economy in The Jackson Era
The Death of the Monster
In 1834, President Andrew Jackson celebrated a "glorious triumph."
The old warrior, the man who battled the Creeks, the Seminoles, and the British, now cheered his victory over that "mammoth of corruption and power."
Who or what was the "monster" that he'd sworn to kill two years earlier? It was the Bank of the United States (BUS)—and Jackson's defeat of the Bank and its president, Nicholas Biddle, was among the most important legacies of his presidency.
The Bank of the United States
The Bank of the United States had been created in 1791. Chartered by the federal government, its stock was jointly owned by the government and private investors. It served as the government's bank—federal tax revenues were deposited in it and the government's bills were paid by it. It also served as a convenient source of short-term loans for the government when tax collections did not meet spending needs.
But the Bank also had other clients. It received deposits and extended loans to private citizens as well as the federal government.
The Bank had been controversial since its founding. Some questioned its constitutionality. But this issue had been answered by the Supreme Court in 1819. In McCulloch v. Maryland, the Court ruled that the Congress did possess the authority under the Constitution to charter the Bank. But even after that decision, the Bank remained controversial—and Andrew Jackson was among its harshest critics.
Jackson's Economic Nostalgia
In order to understand Jackson's opposition to the Bank, one needs to appreciate the nostalgia that underlay his economic vision.
Much like Thomas Jefferson 50 years earlier, Jackson idealized an economy of small farmers and artisans as he believed these sorts of economic pursuits encouraged virtue and independence.
He consequently opposed many of the dominant tendencies within America's emerging market economy during his own time. He worried about the new large manufacturing centers and the growing numbers of corporations in America—but most of all he worried about the concentrations of capital and economic power that created them.
The Maysville Road Veto
Jackson's economic nostalgia explains more than his opposition to the Bank—it also explains his veto of the Maysville Road bill in 1830.
The Maysville, Washington, Paris, and Lexington Turnpike Road Company was a corporation chartered by Kentucky to build a 60-mile road across a portion of the state. Ultimately, the company planned to connect their road with the National Road stretching westward from Cumberland, Maryland. To support the project, Congress approved the purchase of $50,000 worth of stock in the company.
But the decision was controversial, as many questioned whether this was an appropriate use of federal funds and an appropriate exercise of congressional authority.
Jackson vetoed the bill. He doubted the constitutionality of all attempts on the part of the federal government to fund roads and bridges—these sorts of "internal improvements" weren't explicitly authorized by the Constitution. The Maysville Road was, moreover, particularly problematic. Confined as it was entirely to the territory of one state, it couldn't be defended as an interstate (and therefore) national project.
And since the entity building the road was a private corporation, the federal government, Jackson believed, shouldn't be involved. Government entanglement with private business created all sorts of opportunities for corruption, as private entrepreneurs grew attached to government support and government officials lost sight of their public responsibilities.
Bu underlying these particular objections was Jackson's more basic suspicion of all activity that accelerated the economic changes that, he believed, were harming most people and the general character of the American economy. By vetoing the Maysville Road bill, Jackson hoped to ensure that America's market economy would grow more slowly—and that the small farmers and artisans who populated his economic ideal would not be soon displaced by the growing forces of concentrated economic power.
Jackson's View of the Bank
Jackson's opposition to the Bank of the United States was rooted in the same philosophy and concerns. In urging its elimination, Jackson joined a large group of bank critics.
But Jackson's specific objections to the Bank weren't shared by most people anxious to see it eliminated. Most of the Bank's critics were upset primarily by the power that it exercised over the nation's money supply. As the nation's largest bank, the BUS was able make demands upon smaller state-chartered banks. Most importantly, it could require that the state banks redeem their notes with gold specie when presented to them by the BUS. This forced state banks to practice conservative lending policies so that they had plenty of specie on hand to meet BUS demands.
Financial conservatives appreciated the Bank's role in maintaining a fairly tight national money supply. But others interested in increasing the amount of money available—interested in making it easier to access credit and cash—resented the power of the Bank. To these critics, it appeared that the Bank was interested less in fiscal prudence than in freezing the status quo, in denying common people the financial support needed to work their way up the economic ladder.
Jackson agreed with a portion of this argument. He thought the Bank exercised far too much influence over the nation's economy. But he objected less to its monetary conservatism than to the broader system of credit and speculation that the BUS, and all other banks, supported.
In other words, Jackson's criticism of the Bank was really a criticism of all banks, and the sort of economic behaviors they encouraged. He believed that an economy built on credit was inherently unstable and a person who made his money through speculation rather than the production of something real—like a crop or a manufactured good—was less independent and less virtuous. He believed that an economy that rested on the circulation of paper—inflated bank notes, stock certificates, and bonds —was unstable and morally suspicious.
Moreover, this sort of economy rewarded a narrow and, in Jackson's eyes, dubious slice of the public—the speculator, the risk-taker, the money-lender—rather than the hardworking artisan or virtuous small farmer.
The Bank Bill of 1832
Jackson's views on banking and the money economy were probably more conservative than those of the nation as a whole, making his ferocious opposition to the Bank politically controversial—and so his political opponents decided to build their 1832 campaign for the presidency around it.
Even though the congressional charter that had created the Bank wasn't due to expire until 1836, they introduced a bill into Congress that would re-charter the Bank for another 15 years. And just as they expected, Jackson had no choice by to take the bait by vetoing it.
In his veto message, Jackson itemized his complaints with the bank. He claimed that it served only a small financial elite, primarily the Bank's stockholders. And playing to Americans' resentment of foreigners, he pointed out that a large number of these stockholders were British. He also appealed to the regional tensions within the country in noting that while the majority of the stockholders were from the Northeast, the majority of the loans were extended to people in the West and South.
The overall emphasis of Jackson's message was that the Bank favored a privileged few, and that it was entirely inappropriate for the federal government to support an institution that benefited the wealthy at the expense of all others. The world was full of natural inequalities, he argued, but the government should not conspire to "add to these natural and just advantages." And when a public entity like the Bank helped "to make the rich richer and the potent more powerful," common people, who had "neither the time nor the means of securing like favors to themselves," had a right "to complain of the injustice of their government."17
Jackson critics immediately challenged his arguments, but they attacked even more aggressively Jackson's use of the veto in this instance. Since the nation's founding, there had been only nine vetoes of congressional legislation—and in every case, the president had justified his decision on the basis of a measure's constitutionality. Jackson too disputed the constitutionality of the bank, despite the Supreme Court's 1819 affirmation of the Bank's constitutionality in McCulloch v. Maryland. Arguing that every member of the government possessed certain interpretive responsibilities—the obligation to apply the constitution as he "understands it and not as it is understood by others"—Jackson, in one stroke, denied both the Bank's constitutionality and the Supreme Court's claim of exclusive interpretive authority over the Constitution.18
But the constitutional argument was only one part of Jackson's veto message. It was only one among several reasons why he decided to reject the legislation. And this is what most shocked his congressional opponents. Jackson claimed not only the authority to encroach upon the Court's interpretive role, but also upon Congress' legislative role. In vetoing the bill not just because it was unconstitutional, but because he disagreed with it as a matter of policy, he asserted a much larger and unprecedented new role for the president within the legislative process.
As a result, when the Bank became the central issue within the 1832 presidential election, Jackson's opponents made his use of executive power, not the details of the bank controversy, the focus of their campaign. They called Jackson an executive tyrant—disrespectful of the necessary separation of governmental powers. Jackson, too, used the Bank controversy to address a broader set of concerns—but Jackson's issue was not constitutional power but the distribution of economic power in America.
Jackson's Mandate to Destroy the Bank
Jackson won the election by a large margin. He defeated Henry Clay by more than 200,000 popular votes, resulting in an Electoral College landslide of 291 votes against Clay's 47. Jackson, flush with victory, interpreted his reelection as a mandate of public support for his views on the Bank—and so, he resolved to crush the Bank even before its charter expired in 1836.
Part of Jackson's logic was that the "money power" might corrupt the Congress before 1836. Wealthy supporters of the Bank might buy off enough congressmen to pass another re-chartering bill—and even enough congressmen to override a second veto. But Jackson was also driven by passions that were both philosophical and personal. His belief that the bank aided the wealthy in their exploitation of common people merged with a fiery resolve to destroy the Northeastern political enemies who'd opposed him throughout his career.
Therefore, rather than wait for the charter to expire, he decided to drive the Bank into immediate bankruptcy by redirecting all of the nation's tax collections into one of seven state banks while still paying all of the government's bills from its accounts in the BUS. Soon the government's BUS accounts would be empty and, starved of cash, the Bank would die.
It was a workable plan, but one that played right into criticisms that Jackson was disrespectful of orderly governmental processes and contemptuous of the other branches. Even his own Cabinet hesitated. When he ordered his Secretary of the Treasury to redirect the government's tax revenues, the secretary hesitated—so Jackson had him removed from office.
The secretary's replacement also refused to implement Jackson's strategy, so he too was fired. Jackson's third appointee, future Supreme Court Chief Justice Roger Taney, proved more agreeable. On September 25th, 1833, Taney ordered all future government tax receipts deposited into the state banks. Jackson finally had found the support he needed inside his own Cabinet.
But outside, in the halls of Congress and on the editorial pages of hostile newspapers, the criticism of Jackson grew.
King Andrew I
Over the next two years, Jackson's opponents turned a growing list of complaints into a damaging portrait of the president.
His unprecedented use of the veto, his encroachment on congressional power, his denial of the Court's exclusive interpretive authority, his unwillingness to allow the Bank to die a natural death, and his heavy-handed treatment of his own Cabinet all contributed to a characterization of Jackson as a president out of control—an executive bully reminiscent of past tyrants.
In fact, his critics soon took to calling him King Andrew I. And the party that coalesced in opposition to him began to call itself the Whigs. During the 17th century, Great Britain's Whigs had protested the Stuart kings' bloated claims of royal power. During the American Revolution, Patriots had imitated their example by calling themselves Whigs in their own fight against King George III. In 1834, the anti-Jackson forces adopted the label in their battle against a man they believed was yet another power-grabbing executive. In calling themselves Whigs, they likened their war against King Andrew I to the great battles against tyranny of the past.
With criticism of Jackson mounting, the Bank's president, Nicholas Biddle, concluded that he could play fiscal hardball with the president. As government deposits in the Bank shrank, Biddle called in outstanding loans—more than the circumstances required—in order to force a credit crisis that he believed would be blamed on the president.
The results were immediate. Throughout the country, businesses failed, prices and wages dropped, and unemployment rose. And initially, most of the public did seem to blame Jackson. In March of 1834, the Senate, believing it reflected the public mood, voted to censure the president for assuming "authority and power not conferred by the Constitution and laws, but in derogation of both."19
But by the time the Senate took its vote, the tide of public favor had already begun to shift toward Jackson. Pro-Jackson newspapers throughout the nation relentlessly attacked Biddle, editorializing that the economic crisis demonstrated the extraordinary and unhealthy power of the bank. And Jackson, still tremendously popular among common people, argued that the crisis provided proof not only of the Bank's power, but of its willingness to cause economic ruin in order to protect this power.
On April 4th, 1834, the House of Representatives countered the Senate censure of the president with a resolution supporting Jackson's Bank policy. The House also voted to investigate Biddle's role in causing the current financial crisis. Facing a House investigation and growing public anger, Biddle finally came to his senses—he threw up the white flag in the "Bank War" and eased up on credit, contributing to a brief economic boom.
But this change of heart couldn't buy the Bank a new federal charter. The Second Bank of the United States ceased to exist as a national bank on March 1st, 1836.
Jackson's Pyrrhic Victory
Jackson had won; "the monster" was dead.
But his destruction of the Bank didn't achieve what he'd hoped. He'd set out to do more than just eliminate the Bank; he wanted to restore an older type of economy. He wanted to curb the credit-driven, speculation-indulging practices of the emerging market economy. He wanted to destroy not just the Bank, but also the sort of shady economic practices that he associated with all banking-based economic systems.
But ironically, the death of the Bank only encouraged the proliferation of new state banks that engaged in the very practices he opposed. As the power of the Bank of the United States declined, states chartered their own banks—between 1830 and 1837, 347 new banks opened with state charters, and many of them implemented lending policies that were very different than those practiced by the BUS.
More anxious to stimulate growth and less concerned with protecting the nation's money supply, they pumped far more cash, on far easier terms, into the economy. Combined with a set of other factors—silver deposits from Mexico, rising cotton profits, and increased flows of British investment capital—these new credit-friendly state banks helped launch a short-term economic boom.
The boom would collapse within just a few years—and Jackson would be able to say "I told you so." But by then, he was out of office and, to a certain extent, out of touch with the direction of the American economy. As much as he reflected the public's resentment of economic privilege, he failed to appreciate the public's very real interest in expanding, rather than reducing, access to the emerging world of credit, paper money, and speculation.
Jackson's destruction of the Bank of the United States therefore left an important but mixed legacy. It decentralized the nation's banking system, allowing state-chartered banks to operate with more autonomy. It contributed to an expansion of the money supply and easier access to credit. But it also left the nation's banking system, and its money supply, without any sort of national oversight or coordination. The federal government would be unable to introduce any reforms aimed at building a more coherent national banking and monetary system until the Civil War.
The one thing that Jackson's war on the Bank emphatically did not do was restore America to a nation of small farms and self-employed artisans. That was one battle that Old Hickory could not win.