What Hath God Wrought (58 page)

At first Biddle’s credit contraction had its desired effect: Memorials poured into Congress from all over the country pleading for the restoration of the deposits to the BUS. But when the petitioners waited upon the White House, the president responded to them: “Insolvent do you say? What do you come to me for, then? Go to Nicholas Biddle. We have no money here, gentlemen. Biddle has all the money.” Jackson did not exaggerate: During the thirteen months from August 1833 to September 1834, the specie reserves of the BUS increased from $10 million to $15 million, while at the same time the bank was diminishing its loans by 25 percent.
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Eventually the public—even including the business community, Biddle’s core of support—heeded the president and began to blame high short-term interest rates on the BUS. The national banker had overplayed his hand. He had confirmed in the minds of all observers the correctness of Jackson’s accusation: Nicholas Biddle wielded too much power.

In the end, Biddle’s contraction failed to help his cause. With the House controlled by Democrats and the Senate by Whigs, Congress did nothing either to restore the federal deposits or to define an alternative to the pet banks. As for recharter, Clay, Calhoun, and Webster had not even been able to agree among themselves on a strategy to pursue, though the cause was hopeless anyway. Under the urging of Whig leaders, Biddle relented, and the country was soon recovering from his artificial contraction, the only (brief ) interruption in the otherwise continuous prosperity and economic expansion of the Jackson years. Actually, the recession had been mild as well as short. State banks partly compensated for Biddle’s contraction by extending their own credit, and capital continued to flow into the country from Europeans investing in American transportation projects and state bonds. Biddle’s “panic,” as contemporaries called an economic downturn, was to some extent the creation of the press and opinion-makers in exaggerating the effects of Biddle’s contraction.
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The public’s response demonstrated the influence of the media in a time of expanding communications. Biddle proved to have less economic power than either he or his critics had believed, but he waged a battle for public opinion and lost. In the midterm elections of 1834-35, the state legislatures returned control of the Senate to the administration.

At the conclusion of its federally chartered existence, the BUS could have wound up its affairs with assets of $70 million (1.25 billion 2005 dollars) and outside liabilities of $26 million (including $21 million in circulating currency). Biddle, however, chose to seek a new lease on life for his institution with a state charter from Pennsylvania. The BUS repurchased its own shares of stock from the federal government for $7,866,145.49. But the great days of the Bank were over, and the state charter proved unwise. Biddle led the Bank into speculation in cotton futures that turned out badly, and in 1839 he retired to Andalusia, his home in the country. In 1841, the renamed United States Bank of Pennsylvania declared bankruptcy. Its creditors and depositors received partial compensation; the stockholders (by then predominantly foreigners) lost everything. When Biddle died in 1844 at the age of fifty-eight, his fortune had gone the way of his popularity.
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A comprehensive alternative to the doomed BUS had been the goal of William J. Duane’s brief time at the Treasury. He had advised Jackson to wait for Congress to reconvene and then draw up a plan in conjunction with the legislators. But Jackson’s impatience to remove the deposits from the BUS left no time to organize such an alternative plan and forced him to resort to the pet bank scheme, though he felt no real enthusiasm for it. Pet banks had been used before, during the interval between the end of the First BUS and the charter of the Second, and occasionally since in areas where the BUS had no branch, never with great success. Taney persuaded Jackson that the pet bank “experiment,” as he called it, deserved trying again.
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Events confirmed Duane’s doubts rather than Taney’s hopes.

On the whole, the state banks did not welcome Jackson’s destruction of the BUS. Where regional or state banking systems were strong, as in New York (whose banks contributed to a statewide “safety fund”), New England, and Virginia, state banks could be relatively indifferent to the BUS; elsewhere all but the most reckless wildcat bankers accepted the necessity of its policing functions. The capital-hungry West relied heavily on the resources of the national bank. The administration was genuinely worried that it might not be easy to find enough state banks willing to accept government deposits transferred from the BUS and felt relieved when Amos Kendall identified seven of them—not surprisingly institutions run by loyal Democrats.
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The pet banks responded to the government’s largesse by expanding their loans, not only quickly counteracting Biddle’s contraction but exacerbating the speculative boom that characterized the closing years of Jackson’s administration. The one that behaved the worst was Baltimore’s Union Bank, of which Secretary Taney was both legal counsel and a stockholder. By the time Taney was forced out of the Treasury by the Senate, he had been deeply embarrassed by the conduct of the pets in general and Baltimore’s Union Bank in particular. Taney’s successor, Levi Woodbury, made serious efforts to regulate the pet banks by threatening to withhold further deposits. But Woodbury’s sincere efforts were undercut by political pressures to multiply the number of pet banks so as to spread the federal money around. Pet banks became an additional form of Democratic Party patronage. Their number rose from seven to twenty-two, to thirty-five, and eventually to over ninety. It was impossible not to compromise standards of financial integrity in bringing so many banks into the fold, especially when almost all banks run by Whigs were kept off the list.
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The most important consequences of Jackson’s Bank War were unintended by the participants. The safety fund of the New York banks, together with the commissioners of the Erie Canal, had intervened at a critical junction to make funds available to counteract Biddle’s contraction.
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With the demise of the BUS, New York City, already the nation’s center of commerce, replaced Philadelphia as the center of finance, but Van Buren, New York’s leading administration spokesman, had not foreseen this and had been distinctly unenthusiastic about the Bank War. Meanwhile, Jackson and the hard-money advocates in his administration presided to their growing discomfiture over a speculative economy and a dangerously unstable banking system. High cotton prices and the inflow of capital from overseas prompted the founding of many new banks, a process further stimulated by the hope of attracting federal deposits. Jackson, who had declared his dislike for “all banks,” witnessed the total number of banks in the country double between 1832 and 1837.
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The administration tried to implement hard-money principles, encouraging people to bring gold to the mints for coinage (by slightly overvaluing it) and forbidding the pet banks to issue paper currency in small denominations. But the currency of other banks continued to circulate because most of the public found its convenience outweighed its risk, and when the Van Buren administration abandoned the pet bank scheme, the government lost what leverage it had had on the supply of paper money. Bank notes remained the typical American currency until the Civil War. The failure of the Jacksonians to replace paper with specie was on balance no bad thing, for an all-metallic circulation would have entailed problems even worse than those of bank notes. When the value of gold or silver rose on the world market, American coins would have been exported and the country left to suffer deflation. The consensus of modern economists is that had Jacksonian metallism been effectively adopted, the American money supply would have been significantly constrained and the economic expansion of the rest of the antebellum period inhibited.
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The outcome of the Bank War represented a symbolic victory for the president and the Democrats, but it brought little if any tangible benefit to the plain folk who constituted the party’s most faithful followers. The influence of wealth on American politics was not lessened, nor the opportunity for speculation decreased, by Jackson’s destruction of the Bank. It was America’s misfortune that the future of the national bank could not have been resolved through compromise and a larger measure of government supervision. Jackson and Biddle were both too headstrong for the country’s good. The great Bank War turned out to be a conflict both sides lost. The government ended up without the services of a central bank, with an uncontrolled and fluctuating paper currency, and powerless to mitigate the swings of the business cycle. The Bank of the United States ended up with a far inferior Pennsylvania charter and on a road that led to bankruptcy. Not until the National Banking Act of the Lincoln administration did the government issue paper currency of its own, and not until the establishment of the Federal Reserve System in 1913 did the United States have a central bank in the modern sense to which Nicholas Biddle aspired.

V

Vice President Calhoun observed the election of 1832 in brooding isolation, totally estranged from the rest of Jackson’s administration. The Bank was popular in his home state and had been so ever since the presidency of Langdon Cheves; South Carolinians owned more of its shares than citizens of any other state save Pennsylvania.
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Calhoun’s close associate George McDuffie led the fight for recharter in the House of Representatives. Yet Calhoun, reborn as a state-righter, could not swallow the rest of Clay’s program, the American System with its faith in protective tariffs. So the former nationalist found himself cut off from both major parties even while he consolidated his political position at home. South Carolina, the only state where the legislature still chose presidential electors, cast its eleven votes as a solitary protest. They went to John Floyd, the Virginia governor who had disappointed the advocates of gradual emancipation during the 1831–32 debate following Nat Turner’s Rebellion.

The political isolation of South Carolina and its leading statesman came about during prolonged debates over the protective tariff. The bizarre features of the 1828 Tariff of Abominations had been arranged to put Andrew Jackson in the White House, but once he got there, they presented a problem. The cotton South resented the tariff bitterly but lost its chief free-trade advocate within the administration when Calhoun fell from favor. Pressure to adjust the tariff then arose from a different consideration. Prosperity was filling the Treasury with revenues and the proceeds from land sales. The government expected to pay off the national debt by 1833, at which time either tariff revenues should be reduced or the federal government find ways to spend more money. Jacksonians dreaded the latter prospect since it would invite Henry Clay to exercise his imagination. Revenue could be reduced either by lowering the duties charged or by raising them so high that fewer items were imported. The new president’s views were carefully ambiguous (when elected, he was on record as favoring a “judicious” tariff ). Far from crusading against the growth of a diverse market economy, Jackson mildly supported tariff rates that would nurture industrialization, especially defense industries.
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But tariff rates did not stir his feelings as did Indian Removal or the Bank.

While Jackson delayed addressing their problem, the planters’ resentment over the tariff seethed, most of all in South Carolina, where cotton producers were having difficulty squeezing a profit out of lands less fertile than those of the Creek Cessions to the west. South Carolina’s Piedmont had never recovered from the hard times following the Panic of 1819, and its people departed in droves, seeking better opportunities farther west. (By 1840, a third of all the people born in South Carolina were living in other states.) Radical state-righters like William Smith and Thomas Cooper blamed South Carolina’s woes on the tariff and made threats of secession if no redress were forthcoming. Calhoun’s good friend George McDuffie virtually became one of the Radicals. He harangued the U.S. Senate on how a tariff that imposed duties averaging 40 percent robbed cotton planters of the value of 40 percent of their crop—forty bales out of every hundred. McDuffie’s economic reasoning was flawed, but his “forty-bale theory” fell upon receptive ears in South Carolina. (A modern economist has calculated that a 40 percent tariff cost antebellum planters 20 percent of their real income from cotton—less than McDuffie claimed but still very significant.)
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After the enactment of the Abominations in the spring of 1828, Calhoun felt under serious pressure to do something. He needed a plan that would keep the Palmetto State in the Union while reclaiming control of his state’s protest from extremists. Calhoun’s patriotic love for the Union, which had earlier impressed John Quincy Adams, had not evaporated—and besides, he still nurtured the hope to succeed Jackson in the White House. As the historian Michael O’Brien has put it, Calhoun hoped to steer between “the Charybdis of Thomas Cooper’s radical idea of state nationality and the Scylla of Henry Clay’s Unionism.”
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Calhoun’s solution to the problem appeared in an elaborate treatise called
The South Carolina Exposition
, where he laid out a program to force a lowering of the tariff. Calhoun composed it in the summer and fall of 1828, in response to a request from a committee of the state legislature. He commenced with the assertion that protective tariffs were unconstitutional, despite long-standing practice. The Constitution says, “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States” (Article II, section 8). Calhoun believed that this should be read as granting the power to tax
in order to
pay the debts, etc. Thus only tariffs for revenue were authorized; tariffs for protection were unconstitutional since they served a particular, rather than the “general,” welfare. Other interpreters, however, claimed there was no such limitation on the taxing power; they read the phrase “to pay the Debts” as a separate, additional grant of power to Congress. (Even if Calhoun’s grammatical interpretation be granted, the difficulty of deciding when a tariff is “for revenue” and when “protective” seems insuperable, since all tariffs have both elements, and the congressmen who voted for it probably did not all have the same motive. The Supreme Court has never drawn the distinction.) Calhoun marshaled arguments that the tariff hurt the agricultural exporting sector of the economy and that it was dividing the American public into hostile political camps. In his original draft, Calhoun warned that a protective tariff would divide not only South from North but “capitalists” from “operatives,” thus provoking not only sectional but also class warfare. This passage, however, was cut from the version that the committee presented to the legislature and published.
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