What Hath God Wrought (55 page)

Jackson’s performance at the Jefferson birthday dinner displayed several characteristic features of his presidency: his confidence in Van Buren, his hostility to Calhoun, his impetuousness, his relative indifference to the tariff as an issue, and, above all, his determination to maintain the sovereign authority of the national government, which was the basis of his own authority as its president.

III

That the modern twenty-dollar Federal Reserve Note should bear Andrew Jackson’s portrait is richly ironic. Not only did the Old Hero disapprove of paper money, he deliberately destroyed the national banking system of his day. What is called “the Bank War” came about through a clash between two forceful personalities, Andrew Jackson and Nicholas Biddle, president of the Second Bank of the United States. Once the conflict had been provoked, popular prejudices came into play and a dramatic conflict ensued. The sharply contrasting images of Jackson and Biddle appealed to different social constituencies, polarizing public opinion. The United States of America was not big enough for both Andrew Jackson and Nicholas Biddle to play the role that each envisioned for himself. In the end, their conflict had major consequences for the country’s economic development.

Nicholas Biddle had been born into an old Philadelphia family of respectability and prominence. Intellectually precocious, he studied at the University of Pennsylvania and Princeton between the ages of ten and fifteen. At eighteen he was private secretary to the American minister in Paris. Back in Philadelphia he edited the leading American literary magazine, the
Port-Folio
, and wrote a history of the Lewis and Clark expedition using the explorers’ own notes. As a patron of the arts, he encouraged the Greek Revival architectural style. In the Pennsylvania state senate during the War of 1812 Biddle helped the federal government float war loans and backed Madison’s efforts to re-create the Bank of the United States. After Congress agreed to charter a Second Bank for twenty years starting in 1816, President Monroe appointed Biddle one of the government’s five members on the BUS board of directors. There he quickly demonstrated both an academic and a practical mastery of economics and finance. In 1823, following the retirement of Langdon Cheves, the stockholders elected thirty-six-year-old Biddle president of the Bank. From then on he dominated the board of directors much as John Marshall did his colleagues on the bench. Brilliant, versatile, public-spirited, and a gracious host, Nicholas Biddle seemed Philadelphia’s answer to Virginia’s Thomas Jefferson.
¹³

The Second Bank of the United States was the largest corporation in the country; indeed, it was the only really nationwide business. Modeled on its precursor, the Bank Hamilton had founded, the Second BUS held the Treasury’s tax receipts on deposit and handled the federal government’s financial transactions. Like most other banks of the time, it issued its own paper currency; unlike most of theirs, its notes were legal tender and could always be exchanged for gold and silver. The government itself issued no paper money, only coins. By presenting the paper money of state banks for redemption, the national bank could limit their extensions of credit. The BUS made loans to other banks as well as to other businesses and individuals; unlike the Federal Reserve Bank of today, which is the debtor of its member banks, the Second Bank of the United States was the creditor of state banks. Like the Federal Reserve Bank of today, it marketed the Treasury’s securities to buyers from all over the world. The BUS handled virtually all foreign exchange transactions, a vital function for a debtor country with a chronically unfavorable trade balance. During the 1820s, the Bank rapidly expanded its practice of making commercial loans. Because its branches had a degree of autonomy, the Bank could accommodate the varying financial needs of different regions. The BUS was evolving into a modern central bank; that is, it could expand or contract the money supply so as to mitigate (within limits imposed by the gold standard) the swings of the business cycle. Under Biddle’s direction it did this at times, though usually it was content to police the currency of the state banks, making sure they had adequate specie reserves to back up their note issues.
¹⁴

The way in which the national bank combined public functions with private profit inevitably exposed it to criticism. Yet the BUS compared favorably with the contemporary Bank of England in this regard. The most authoritative and impartial expert on American finance at the time, Albert Gallatin, secretary of the Treasury under both Jefferson and Madison and now president of John Jacob Astor’s bank in New York City, assessed the performance of the BUS favorably. But if the Bank had done a good job under Biddle, it had not always done so under his predecessors. No real safeguards prevented the Bank misusing its power. Probably the worst feature of the national bank was its practice of lending money to prominent politicians and editors. This created at least the appearance of impropriety, even though the borrowers included not only its defenders like Clay and Webster (the latter the Bank’s retained counsel) but also critics like Jackson’s postmaster general, William Barry, and his successor, Amos Kendall.
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Conflict-of-interest rules lay far in the future.

The Second Bank of the United States had not been an issue in the election of 1828; indeed, Biddle had voted for Jackson. Times were prosperous, the BUS was helping them stay that way, and the unpopularity of the institution subsided after the Panic of 1819 had died down. Yet the Bank retained a hard core of adversaries, and among these, it turned out, was the new president. Years before, Jackson had speculated extensively in land and promissory notes. When some of the complicated deals soured, he narrowly escaped financial ruin. From these youthful experiences the old man derived his distrust of banks and promissory notes and his horror of debt. That he found it impossible to live without recourse to banks did not affect these attitudes. Early in their relationship the president told his national banker, “I do not dislike your bank any more than all banks.”
¹⁶

But in the White House, Old Hickory’s distrust of banks in general was soon overshadowed by his hostility toward the BUS in particular. Amos Kendall and Francis Blair, whose animosity to the national bank went back to their early careers in Kentucky, fanned these flames in their chief ’s breast. His First Annual Message in December 1829 raised the subject of whether the Bank’s charter should be renewed, although it had until 1836 to run. Jackson complained that the Bank had “failed in the great end of establishing a uniform and sound currency.” This was simply untrue; the Bank’s currency circulated at or very near par in all parts of the country. Though it sounded like the president wanted the national bank to be the only one issuing paper money, in fact, Jackson didn’t want any banknotes at all. A strict adherent to the gold standard, he believed that only precious metals should circulate as money. When Congress did not respond, he raised the subject again in his Second Annual Message, urging that a different national bank should be created, “shorn of the influence which makes that bank formidable.” Jackson proposed to make the national bank an arm of the Treasury itself.
¹⁷
A better solution would have been to institute more effective government regulation of the BUS; a national bank under direct political control would have been an even more powerful and potentially dangerous institution than Biddle’s.

The Bank of the United States was the largest example in the country of a mixed public-private corporation, and Jackson criticized both its public and private aspects. Sometimes he waged his war on the Bank as an agency of overcentralized government, but more often he attacked it as a private enterprise that had received unjust privileges, an artificial monopoly unresponsive to government or public. What Jackson minded most about the national bank was that it constituted a rival power center. Biddle, self-confident to the point of arrogance, did nothing to hide his institution’s potential. Asked by a congressional committee if the BUS ever oppressed state banks, he responded, “Never,” adding candidly, “There are very few banks which might not have been destroyed by an exertion of the power of the Bank.”
¹⁸
To Biddle this testified to his responsibility and restraint, but in the eyes of Jackson and his friends, it was a frank confession. Even if not exercised, such power was incompatible with the sovereignty of the people. The Jacksonian Senator Thomas Hart Benton warned that the Bank could “subjugate the government.” Jackson himself habitually referred to the Bank as “the Monster,” a word that implied unnatural and enormous power. The president’s confidant Amos Kendall predicted, “It will come to this: that whoever is in favor of that Bank will be against Old Hickory.”
¹⁹

Although some people felt strongly about it, the public as a whole was not sharply divided into pro-and anti-Bank factions during the 1820s and early ’30s. Until the two leaders polarized opinions, most Americans were probably ambivalent or complacent in their attitude toward the Bank. Many leading Democrats in both the executive and legislative branches wanted the government to avoid a confrontation with Biddle’s institution. In Congress, the president’s anti-Bank proposals got nowhere. Intermediaries tried to work out some sort of modus vivendi between the two jealous chieftains. When Jackson reconstituted his cabinet in 1831 to resolve the Peggy Eaton problem, he appointed as his new Treasury secretary Louis McLane, the successful negotiator of the recent trade agreement with Britain. McLane was friendly toward the Bank. Biddle welcomed this action as good news. The bad news from his point of view was that Jackson, despite ill health, resolved to run for reelection. (The president’s chronic pain had been somewhat relieved when a surgeon finally removed from his left arm the bullet Jesse Benton had fired at him nineteen years before.)

The national banker faced a difficult situation. His institution’s charter would expire in 1836 unless renewed. The administration had sent him mixed signals, the public presidential denunciations mitigated recently by private equivocations from Jackson and reassurances from other high-ranking sources. In August 1831 Martin Van Buren left Washington as chief envoy (“minister plenipotentiary”) to Britain, a logical move for the former secretary of state; in his absence no clear presidential favorites emerged. The reconstituted official cabinet was mostly pro-Bank; Jackson’s unofficial kitchen cabinet, still anti-Bank. (Biddle confided his fear “that the kitchen would predominate over the parlor.”)
²⁰
So the bank president sought to be conciliatory. When Jackson complained that BUS branches in Kentucky had exerted influence against local Democratic candidates, Biddle investigated and tried to reassure Old Hickory. He appointed Democrats to the boards of directors of branch banks and made plans to hasten the retirement of the national debt, a project he knew to be close to the president’s heart.
²¹

Meanwhile, in England, Van Buren enjoyed the cordial Anglo-American relations that followed the resolution of the West Indian trade dispute. He particularly admired the Tory military hero Wellington, who reminded him of Jackson.
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But in the Senate, Clay and Calhoun lay in wait to ambush the Fox. In January 1832, Van Buren’s nomination as minister plenipotentiary to Britain came up for confirmation. The Senate was closely divided between administration supporters and the opposition, and a tie vote was easily arranged. This gave Vice President Calhoun the satisfaction of casting the deciding vote against the man who had supplanted him in Jackson’s favor. Van Buren would have to return from London. “It will kill him, sir, kill him dead,” Benton overheard Calhoun exult to a friend. “He will never kick, sir, never kick.” Events proved Calhoun wrong, as they so often did. The Senate’s action cast Van Buren as a victim of political spite and endeared him to the president and Democratic faithful. When Jackson was informed of it in the middle of a dinner party, he jumped to his feet. “By the Eternal! I’ll smash them!” Rejection by the Senate has been rightly judged the best thing that ever happened to Van Buren. Benton’s warning to a National Republican senator proved accurate: “You have broken a minister and elected a Vice-President.”
²³
In due course, Van Buren would advance to the presidency itself.

That same month, January 1832, Nicholas Biddle decided to apply for a renewal of the national bank’s charter four years early. Assured that the BUS possessed popularity enough to get such a bill passed, he hoped Jackson would defer to Congress and Secretary McLane rather than risk a fight with the Bank and its supporters in an election year. Once the president was safely reelected, Biddle reasoned, the odds would worsen: Then Jackson would feel he could indulge his prejudices and veto recharter. It was a gamble for high stakes. McLane advised Biddle against it: “If you apply now, you assuredly will fail,” he warned; “if you wait, you will as certainly succeed.”
²⁴
But Biddle suspected otherwise, and not without reason. The most probable explanation for the lull in White House criticism is that the president did not want his showdown with the Bank to come in an election year; but it would have been uncharacteristic for Jackson to back away entirely from a position held long and deeply.
²⁵
Henry Clay, National Republican candidate for president, welcomed Biddle’s decision. He hoped that Jackson
would
veto recharter and hand Clay a potential winning issue. Headquartered on Chestnut Street in Philadelphia, the BUS enjoyed wide popularity in Pennsylvania, and the Keystone State was expected to be pivotal in the election.

Some pro-Bank Jacksonians on Capitol Hill tried to delay the recharter bill until after the election, hoping to avoid having to make an awkward choice between their leader and the popular Bank. Anti-Bank Jacksonians initiated a congressional investigation of the Bank but turned up nothing that changed minds. Memorials poured into Congress from all over the country, especially the West, supporting recharter. Most state banks supported it.
²⁶
In July 1832, Congress passed a measure to extend the Bank’s charter for fifteen years after its expiration in 1836. Many Democrats from the commercial North joined the opposition members in support; others would have liked to support the Bank but were dissuaded by the party leadership. Although Democrats dominated the House, 141 to 72, recharter passed by 107 to 85. Congressional voting correlated closely with that on Indian Removal two years earlier.