King’s Survey: Breaking the Bank

Second_Bank_of_the_United_States_-_north_side
Second Bank of the United States, Philadelphia

In which we see a contest of wills, and a wager on the future of the American economy

Kids, we need to talk about Andrew Jackson again.

—What did he do this time?

Well, Jonah, he’s been up to his old tricks.

—What is it what that guy?

What do you mean?

—I mean, what is it about that guy? I don’t get him.

Essentially, Jackson was a Jeffersonian small government man.

—But you said Jefferson hated him.

Well, like I said the other day, it was more like Jefferson feared him: feared the way ignored the rule of law, and feared the popularity he seemed to have because of it. But there was an underlying continuity there. And it’s important to understand that it’s not simply the small-government thing: that was a means to an end. The end was championing the cause of the little guy (and I guess I do mean guy in this context). When Henry Clay looks at Brianna, the proprietor of the of the Yankee Shoe Company we talked about in our last class, he sees a story of upward mobility that’s honorable and worth encouraging. When Jackson looks at Brianna of the Yankee Shoe Company, he sees an oppressor in the making: someone who’s looking for an unfair advantage that will put her even farther ahead than she already is.

—When you put it that way, I guess he has a point.

Right. You suggested so that day. So you’re a Jacksonian, then, Em?

—I’m not sure.

Fair enough. In any case, once John Quincy Adams was defeated for re-election as president in 1828, it was clear who President Jackson’s main adversary would be: Clay. Jackson hated Clay. That went back to Jackson’s invasion of Florida circa 1818, when Jackson invaded to stop Native American raids and Adams protected him over the objections of Clay, who he thought was playing with fire. (Kind of a curious reversal of roles thereAdams was usually the one who played it straight.) Now that Jackson is president, he’s on the lookout for opportunities to give Clay a kick in the ass. And he gets one right away in 1829, the first year of his presidency, with a project called the Maysville Road.

HenryClay
Henry Clay

The Maysville Road was an idea close to Clay’s heart, a perfect illustration of the way how what Clay called “internal improvements” would advance his American System. The road was to run from one end of Kentuckynot so coincidentally, Clay’s home stateto the other. Look at the map: Kentucky is centrally located, particularly in the United States of 1829, with borders on eight different states. Clay argued that the road would facilitate traffic and trade for the nation as a whole. Nothing doing, Jackson responded: there’s no way I’m going to approve spending federal money on a road in a single state. He vetoed the bill authorizing the Maysville Road, and it died.

—Don’t fuck with me, Henry Clay.

I’m shocked that you remember that slogan from a few classes ago, Ethan.

—It’s what you wanted, isn’t it?

Yeah, I guess. It works. In any case, Henry Clay was hardly through, um, shall we say fighting, with Andrew Jackson. By the early 1830s, the two had emerged as the leaders in what was now a bona fide two-party system that succeeded the old Federalist/Democratic-Republican opposition. As I mentioned, Jackson inherited the Jefferson-Madison mantle, whose supporters were now known as Democrats. (Their opponents considered them a bunch of jackasses, an image that the Democrats adopted as a badge of honor, and indeed is the party icon to this very day is that of a jackass.) Clay became the leader of the Whig Party. Their name came from the Revolutionary erain both Britain and America, the Whigs positioned themselves as opponents of corrupt and arbitrary power. Jackson may have considered himself the champion of the people, but they saw him “King Andrew,” who acted arbitrarily and in defiance of the good of the people as a whole. For the next few decades, the Second Party System, as it was known, shaped American politics.

And few people played politics better than Henry Clay. With the election of 1832 on the horizon, Clay came up with what he regarded as a perfect plan to defeat Jackson’s re-election and vault to the presidency himself. Anybody remember the National Bank?

—That was Alexander Hamilton’s thing, wasn’t it? To promote industry and trade?

Excellent, Adam. Hamilton got the bank through Congress, which chartered it for 20 years. It was in existence from 1791 to 1811. In 1816, recognizing that it had benefits, the Madison administration created the Second Bank of the United States, which helped the rising national economy during the so-called Era of Good Feelings. The Second Bank was chartered to run for another 20 years, until 1836. Like its predecessor, it was controversial. Critics felt it didn’t really help anyone but the fat cats. Jackson in particular loathed the bank. The problem was that by this point is that it was well established, had friends in high places, and that getting rid of it would be difficultand, given the uncertainty doing so would create, even dangerous.

This allowed Clay to set a trap. As he made plans to launch his presidential campaign in 1832, he announced, four years early, that he was a strong proponent of the Second Bank, and that if elected he would certainly support re-chartering it. No surprise there. Here’s the problem for Jackson: he wanted end the bank, and his supporters were counting on him to do it. But saying so could set off panic and wreck the economy. So what’s it gonna be, King Andrew? Weak or reckless? Go ahead: choose.

What do you think Jackson did?

—Don’t fucking fuck with me and your fucking bank, Henry fucking Clay.

Could you translate that into policy, Ethan?

—He means Jackson came out against the bank.

Right. He called Clay’s bluff, famously saying, “The bank is trying to kill me. But I will kill it.”

—But you said that would be dangerous. So what happened?

The Jackson administration in effect constructed an alternative banking system. It began siphoning the government’s money out of the Second Bank of the United States (which was in Pennsylvania, as New York had not yet displaced Philadelphia as the largest city and financial capital of the nation) and putting it in a series of smaller “pet banks” in other states around the country. The pet banks, now gorged with cash, began lending it out feverishly, since banks need to lend money to make money. Jackson cruised to re-election in 1832, and the economy grew in the years that followed. But the pet banks couldn’t really handle all that money. They made lots of loans they shouldn’t have, and the Jackson administration, getting worried about growing profligacy, issued an executive order that any money owed to the United States government had to be paid in gold and silver, not bank notes.

—What do you mean by bank notes?

In those days, there were no dollar bills of any denomination in the way we understand the concept. That didn’t happen until the Civil War. Instead, each bank issued its own bills. Let’s say I put $8 in gold in Paolo’s bank. I’d get a receipt in the form of a piece of paper. The idea would be that after a certain point I’d be able to cash in that paper and get $10: the eight bucks plus another two in interest. So the piece of paper I’d be given would be a $10 note. Now let’s say I did a business deal with Kylie, and I owed her $9. I might say to her, “Here, Kylie, take my $10 note. I owe you $9, but I’ll pay you $10 for your trouble for schlepping to my Paolo bank (she usually puts her money in Chris’s bank) and the fact you have to wait a little to get your money. But Kylie can’t waitor maybe she’s just get nervous about Paolo bank’s financial stability. So she goes to the bank and gets $8.50, because fifty cents is all my original $8 investment has made so far. (Or maybe even less than $8; it will depend on the situation at the time.) To put it another way, my $10 note has depreciated in value. This is just one example of the kind of transactions that would take place. You can see how it could all get pretty complicated pretty fast. That’s why a nervous Jackson administration said: No paper, just precious metal. The problem is when the government does this, everyone else starts doing it, too. And so, in 1837, the U.S. economy crashed, hard, in an event known as the Panic of 1837.

—So Jackson must have become seriously unpopular at that point.

Well, let’s do the calendar math, Kylie. Jackson was elected in 1828, and took office in 1829. In 1832 he was re-elected, and his second term began in 1833. In 1836, he announced he wasn’t running againtwo terms was generally accepted as the limit, and Jackson wanted to retire. So the new president, Martin Van Buren (I’m going to be talking more about him in a minute) was elected in 1836

—And he took office in 1837. Just in time for the depression.

Right.

—So Jackson got away with wrecking the economy.

You could say that, Adam. You could also say that Jackson had legitimate concerns about the size and scope of the Second Bank of the United States, which had the potential to become a corrupt and oppressive force in the American economy. After Jackson destroyed the national bank, the nation went about 75 years before it was resurrected in the form of the Federal Reserve by President Woodrow Wilson in 1913. Significantly, though, the Fed is not a single entity. Here: I’ve got a bunch of $1 bills in my pocket. See this little circle on the left side of Washington’s face? There’s a stamp with a letter and a location. This bill came from the Federal Reserve in St. Louis. I’ve got another here one from Richmond. And a third from Chicago. The Fed in New York is by far the biggest and most important, but Jackson’s insistence on decentralization never entirely disappeared. And here I’ll note that Wilson was a Democrat, and as such was an inheritor of the Jefferson-Jackson tradition. He was also a ProgressiveI’ll explain more what that means next semesterwhich complicates the picture. But it matters that Wilson was a Democratic Progressive, in contrast to his Republican Progressive opponents like Theodore Roosevelt, who was more of a Hamiltonian. But we’ll get to that later. For now you can see that the basic fault line that emerged in the early years of the republic between Hamilton and Jefferson continued long after the left the scene.

—You’re saying that Jackson was a states’ rights kind of guy.

I am saying that, Adam, and it’s good that you realize it. And having said that, I’m now going to take it back.

—No, please. Don’t do that. This is complicated enough to understand as it is.

Sorry, Kylie. History is complicated.

—Fine. Just as long as this isn’t on the test.

This is the test: I’m seeing how much complexity you can handle. You’re passing.

—I’m not. But whatever.

—You can’t stop Mr. K. when he’s on a roll.

Kids, I think we understand that when it came to the economy, among other issues, Jackson was indeed, to use the term Adam just did, a states’ rights devotee. But that wasn’t always true. Remember that Tariff of Abominations I talked about yesterday? Somebody remind us.

—It was that tariff nobody wanted. But it was also designed to hurt JQA.

Right, Jonah. But now JQA was gone, and that tariff was still around. Southerners in particular hated it. Why?

—Because they weren’t interested in factories. They had cotton farms. And they want the cheap shoes.

Right again. Here’s another side of it: Southerners sold their cotton abroad, especially to England. They were afraid that if the United States put tariffs on foreign goods, foreign countries would slap tariffs on theirs. And that would hurt their business. The South wanted a Walmart economy: cheap goods produced with cheap labor. And for them, cheap labor meant slave labor.

Now it’s at this point in the story that we get into some gender politics.

—Well, it’s about time, Mr. K.

Hey, they’re never far from the center of the story, Emily.

—Well, it would be nice to have them in the center more often.

Will do.

Next: Abominable behavior

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