When a President Fought the Nation’s Financial System
American presidents have personal rivalries; sometimes these feuds are hidden from the public while others spill out for all to see. Most presidents don’t attack the nation’s finance department because of the enormous political and monetary blowback. However, Andrew Jackson was one American president who did challenge the nation’s finance department and won—at a high price. There are three things one needs to understand about this Bank War: Jackson, the bank he fought against, and the feud’s effects on the nation. Let’s begin with Jackson.
Andrew Jackson was born on March 15th, 1767, on the Carolina frontier. The rural upbringing, and Jackson’s stubborn personality, left him with little formal education. Jackson became a prisoner of war during the American Revolution and the cruelty he experienced instilled a deep hatred towards anything he perceived as British and elitist. After the war, Jackson became a lawyer and moved to Nashville in far western North Carolina—today’s central Tennessee. Jackson quickly rose through the ranks of local politics. The Panic of 1796 added bankers and land speculators to Jackson’s list of enemies since he almost lost everything during the crisis (Wilentz, 2005, 14-21). Jackson rose to national prominence through the War of 1812 where he led his forces against insurgent Muskogee (Creek) natives in the Mississippi territory—today’s Alabama, Mississippi, and western Florida; he also got revenge on the British by winning the battle of New Orleans in early 1815. Jackson spent the next six years fighting the Seminoles in Florida. Many of Jackson’s victories came from ignoring orders when he felt his superiors were wasting opportunities. The tactic created as many victories for Jackson as political enemies (Warshauer, 2009, 49-67, 72-95). Jackson became a senator when he returned to Tennessee in 1823, providing him a platform to launch his 1824 presidential campaign. His main opponents were John Quincy Adams—son of founder John Adams—and House Speaker Henry Clay. Jackson won the popular vote, but there was no clear winner of the electoral vote. As a result, the issue fell to the House of Representatives. In the run-up to the House election, Adams offered Clay the Secretary of State position if Clay’s people supported Adams. Clay, an ardent Jackson skeptic like Adams, agreed and Adams won the presidency. Jackson denounced the “corrupt bargain” during the 1828 campaign against Adam. Jackson’s victory that November made him the first commoner to rise to the presidency. One of his first targets was The Bank of the United States (Wilentz, 41-54, 74-5).
The Bank of the United States (B.U.S.) was a private bank chartered in 1791 by Congress to operate all over the country. The initial charter expired in 1811, thus limiting the country’s financial abilities during the War of 1812. Congress authorized another B.U.S. in 1816. The new bank faced criticism for its control over the American economy especially after the bank acquired vast tracts of land from their overleveraged owners following the Panic of 1819. In early 1823, Nicholas Biddle became the president of B.U.S. (Warshauer, 149-151). Biddle got the job through his powerful Pennsylvania political family. Biddle’s arrogance and connections made him a target for Jackson and his supporters, but various political issues distracted Jackson from the bank until late 1831 when Clay made reauthorizing it part of his 1832 presidential campaign. Clay, Biddle, and their congressional allies got the bill through both houses, but Jackson vetoed it. He claimed in his veto message that the Constitution didn’t allow Congress to establish a national bank, even though the Supreme Court said it was constitutional in the 1819 legal case McCulloch v. Maryland. Jackson also claimed the B.U.S. helped bankers, land speculators, and the elite at the average person’s expense. Many lower-class voters approved of Jackson’s veto despite Clay and his allies painting it as tyrannical. Jackson won reelection that November and finally destroyed the B.U.S. by transferring all its deposits into pro-Jackson banks. The B.U.S. limped on until its charter expired in February 1836. That’s not to say Jackson achieved a clean victory; pro-Jackson forces lost Congress following the 1832 election. (Wilentz, 76-87, 104-113). Jackson’s victory also spurred the creation of the Whig Party. The coalition of Clay, local economic elites, and anti-Jackson Democrats would oppose the pro-Jackson Democrats for the next two decades (Warshauer, 166-8). The greatest effect of Jackson’s victory was throwing the American economy into chaos.
America lacked a unified banking system before the Civil War; most large transactions, especially on the frontier, were handled by local banks. These banks were chartered by state governments, printed their own currency, and backed it up with reserves of specie—gold and silver coins. The weakening of the Second Bank of the United States spurred investment into these smaller banks. Jackson supported this growth to reward pro-Jackson banks. (Knodell, 2006, 541-556, 564-566). The problem was the growth spurred inflation towards the end of Jackson’s presidency; it didn’t help that his actions looked like what he criticized the Second Bank for doing. In July 1836, Jackson issued the Specie Circular making specie the only way to purchase government land. Jackson assumed the policy would bring down inflation, but it instead caused a run on specie. That November, Martin Van Buren, Jackson’s second vice president, was elected president (Wilentz, 116-20). Bankers and merchants hoped Van Buren would revoke the Specie Circular once he got into office…but he didn’t. By the spring of 1837, just after Jackson left office, major banks ran so low on specie that they froze subsequent payments and conversions into specie. The economy went into further decline when cotton prices went down, incentivizing specie holders to keep their coins (Rousseau, 2002, 462-466, 477-483). The Whigs painted the Panic of 1837 as Van Buren’s fault and a reason to establish a new Bank of the United States. Van Buren’s solution was depoliticizing monetary policy by transferring control of the money supply–how much currency was in circulation– from state banks to the Treasury. This solution—the Independent Treasury—was controversial. Whigs weren’t happy with what they considered a weak solution while some Democrats attacked Van Buren for turning against Jackson’s economic policies. Congress tried implementing other solutions but came up short. It wasn’t until 1846 when President James K. Polk—one of Jackson’s long-time House supporters—made the Independent Treasury a permanent policy (Hummel, 1999, 260-268). The system kept going—barring some expansion during the Civil War—until Congress finally created an actual central bank, the Federal Reserve, in 1913. Thankfully no other president has threatened to dissolve the financial system. They may complain about its policies or the people leading the institutions, but the president—if history reminds them—won’t risk another bank war for their political gain.
Works Cited
Adams, S.P. (2011.) “How Choice Fueled Panic: Philadelphians, Consumption, and the Panic of 1837.” Enterprise & Society 12(4), 761-789. https://www.muse.jhu.edu/article/458162.
Hummel, J. (1999.) "Martin Van Buren: The Greatest American President". The Independent Review 4 (2), 255-281.
Knodell, J. (2006). “Rethinking the Jacksonian Economy: The Impact of the 1832 Bank Veto on Commercial Banking”. The Journal of Economic History, 66(3), 541–574. http://www.jstor.org/stable/3874852
Rousseau, P. L. (2002). “Jacksonian Monetary Policy, Specie Flows, and the Panic of 1837.” The Journal of Economic History, 62(2), 457–488. http://www.jstor.org/stable/2698187
Warshauer, M (2009). Andrew Jackson in Context. Nova Science Publishers. https://ebookcentral-proquest-com.ezproxy1.lib.asu.edu/lib/asulib-ebooks/detail.action?docID=3019223
Wilentz, S. (2005). Andrew Jackson. Time books. https://archive.org/details/andrewjackson00wile
