Nullification Crisis
Tariff of 1828
Andrew Jackson was elected as President of the United States because the American people saw him as the “everyman.” His leadership during the Battle of New Orleans in 1815 gave him the respect of wealthy businessmen, and his simple roots resonated with those who were struggling to carve their own niche. However, his popularity did not ensure that he would avoid scandal and resentment during his presidency.
Jackson’s supporters, angry over John Quincy Adams’ win in the 1824 election, strategized to sabotage his presidency. They pushed a proposal through Congress that would raise tariffs significantly on manufactured items such as wool and textiles. Since Adams was a New Englander and any hike in tariff duties would be enthusiastically supported there, Jacksonians hoped to portray Adams as favoring his home region over the south and west.
The Jacksonians expected a backlash from their somewhat outrageous tariff proposal, which was exactly their purpose. They hoped to push this tariff through to embarrass Adams and his administration and to assist Jackson in getting elected in 1828.
As it turned out, Jackson did not need the tariff to be elected; his popularity got him elected in 1828. However, the proposal was still on the table. It finally passed in 1828, and instead of being an embarrassment to Adams, it wreaked havoc during Jackson’s presidency and came to be called the “Tariff of Abominations.”
When the tariff went into effect, Southerners complained long and loudly. While other parts of the country were experiencing a boom, the economy in the south was stalling. Manufacturing interests, especially in the north, could gain assistance from a “protective tariff,” but Southerners felt the financial strain of the tariffs due to their reliance on northern commodities. Residents of the south felt they were being treated unfairly, and they rallied against the Tariff of 1828 and against Jackson himself.
South CarolinaSouth Carolina, in particular, acted out against the Tariff of 1828. South Carolinans campaigned heavily against the tariff, justifying their arguments with the principles set out in the Kentucky and Virginia Resolutions written in the previous century by Jefferson and Madison to support states’ rights. They also supported their case by arguing that the U.S. Constitution allowed states to individually nullify federal laws for the whole union.
The South Carolina legislature published a pamphlet titled “The South Carolina Exposition,” which offered persuasive arguments for nullifying the Tariff of 1828, stating that it was unjust and unconstitutional. South Carolina eventually revealed that the author of “The South Carolina Exposition” was none other than John C. Calhoun, Vice President of the United States. Calhoun was raised in South Carolina and supported the efforts to nullify the Tariff of 1828.
Supporters of nullification, who came to be known as the “nullies,” attempted to pass nullification through the South Carolina state legislature, but their efforts were impeded by the Unionists, a small but determined group of men who believed that states did not hold nullification rights. Although other states made rumblings about joining South Carolina’s cause, none ever actually did, and South Carolina fought the tariff battle alone.
The nullification cause benefited from Calhoun’s leadership. Calhoun was serving as Jackson’s Vice President, but he had fallen out of Jackson’s favor as his successor thanks in part to Martin Van Buren’s efforts. Van Buren, who was Secretary of State, delighted in any situation that widened the divide between Jackson and Calhoun.
One infamous situation that caused a rift between Jackson and Calhoun, and helped confirm Van Buren as Jackson’s favorite, was the Peggy Eaton affair. Peggy, the wife of Secretary of War John Eaton, had been accused of adultery prior to her marriage to John. The gossip mill speculated that Peggy had cheated on her first husband with John, causing her first husband to commit suicide. Even though John married Peggy, the shroud of dishonor stayed with her.
Jackson had lived through similar scandals surrounding his wife, Rachel. He and Rachel had married, erroneously believing that her divorce from her first husband had been finalized. When the mistake was discovered, Jackson had the divorce finalized and he and Rachel remarried, this time legally. Still, Jackson’s detractors accused Rachel of being an adulteress, and Jackson blamed those accusers for her illness and eventual death.
Not wanting Peggy Eaton and her husband to suffer the same fate, Jackson demanded that his cabinet and their wives treat Peggy as their social equal. However, Calhoun’s wife, Floride, continued to snub Eaton and directed her friends to do the same. Calhoun, hoping to keep domestic harmony, followed Floride’s lead, much to Jackson’s dismay. However Van Buren, a widower who had no worries about marital discord, was free to lavish Eaton with attention, putting him in the President’s favor.
Van Buren also took every opportunity to point out where Calhoun’s opinions differed from Jackson’s, particularly where federal aid to local projects was concerned. One major project that sought federal aid was the national road-building effort. In 1830, Congress passed a proposal for a road in Kentucky to run from Maysville to Lexington. Calhoun supported this effort and championed the use of federal dollars for the Maysville Road construction, since it would eventually be linked to a national road.
However, Jackson exercised his veto power. He acted partially out of his continued animosity for Henry Clay (whose home state would benefit entirely from the Maysville Road), and partly out of his belief that providing federal aid for a single state project was unconstitutional. Supporters of the Maysville Road project were quite angry, and they began calling Jackson “King Andrew” because they believed he had abused his power as President.
Calhoun was dismayed at Jackson’s rejection of both the Maysville Road proposal and of him as Jackson’s political successor. Jackson made his feeling clear about Calhoun on April 13, 1830, during an annual event honoring the birthday of ex-President Thomas Jefferson. During the party, at which both Jackson and Calhoun were present, every toast given extolled states’ rights—until Jackson’s turn, that is. His toast, “Our Union—It must be preserved!” left no doubt about his position, or about his opposition to Calhoun.
Calhoun immediately followed Jackson’s toast with one of his own extolling states’ rights, but for Calhoun, it was apparent that his differences with Jackson would limit his political aspirations. Still, he was determined to fight for his home state, and having lost his hopes for ascending the political ladder, Calhoun switched his focus to championing the south.
Calhoun was not the only prominent figure fighting for South Carolina’s rights. Senator Robert Y. Hayne followed Calhoun’s example of leadership during an event that would come to be known as the Hayne-Webster debate.
Hayne was serving in the Senate when a fellow senator, Samuel A. Foot of Connecticut, proposed a restriction on the sale of western lands still owned by the federal government. Believing that this proposal was an attempt to restrict western expansion and the inevitable political influence of a strong western region, Missouri Senator Thomas Hart Benton appealed to the South to join forces with him to defeat the proposal. Governor Hayne recognized the potential benefits of an alliance with the emerging west and he quickly stepped forward.
Hayne was soon drawn into a debate to justify his position. The proposal to restrict western expansion was originated by Samuel Foot, but it was the eloquent and dynamic orator Daniel Webster, a senator from Massachusetts, who engaged in verbal sparring with Hayne. Although Hayne was an able speaker in his own right, he was no match for the awe-inspiring Webster.
During the debate, Daniel Webster was able to steer Hayne toward another sensitive issue—nullification. Webster underscored nationalism and the destruction which could befall a nation that allows one state to nullify a federal law, making himself out to be a unifier and Hayne a divider. Hayne made attempts to steer the debate back to the interpretation of the Constitution regarding the sale of federal lands, but the damage was done. Daniel Webster won the debate with his argument for nationalism, and Hayne lost public support for his interpretation of the Constitution.
Tariff of 1832 and Clay’s CompromiseSouth Carolina stood firm against the Tariff of 1828 with such acts of defiance as lowering the flags to half-mast. These displays made President Jackson realize that intervention was necessary. John C. Calhoun still carried some influence with the president, who at Calhoun’s urging encouraged Congress to enact the Tariff of 1832. This new tariff reduced the rate of the Tariff of 1828. However, producers in the south remained distraught over the high tariffs and resisted this compromise, as well.
Again, the nullies asked the South Carolina legislature to nullify the tariff, which would affect the entire union. This time, the legislature agreed. In fact, the legislature went further by choosing Robert Y. Hayne as the new South Carolina governor, selecting Calhoun to fulfill Hayne’s spot in the Senate, and threatening to secede from the Union if the tariffs were not reduced.
However, President Jackson was tired of threats from the nullies, and disgusted by the idea that one state could nullify a federal law and secede from the union. His response was firm. He met their challenge by raising an army and sending it to South Carolina. Shortly after his re-election, in his annual message on December 4, 1832, Jackson stated his intention to enforce the tariff, although he too encouraged Congress to reduce the burdensome tariff rates.
Jackson followed his speech six days later with the Nullification Proclamation, which further denounced South Carolina’s action. With his army standing ready to enforce the tariff, Jackson called South Carolina’s bluff. He called upon Congress to develop a “Force Bill” to authorize his use of army personnel to enforce the tariff. Existing legislation already granted him that power, but Jackson felt that a new and specific bill would strengthen his case against South Carolina.
With South Carolina painted into a corner, Calhoun, who had resigned his vice presidency to lead the nullification cause, pleaded with his old friend Henry Clay to help him draft a solution. Clay, who had been embroiled in the scandals surrounding the 1824 presidential election, responded with a compromise proposal. Under Clay’s plan, the high tariffs that burdened the South would be reduced by ten percent over an eight-year period. The Compromise Tariff of 1833 was passed by a small minority in Congress, but it finally brought about significant tariff change.
The new rates were not as low as the Southerners would have liked, but they were more pleased with the compromise than they were with the Force Bill, which they called the “Bloody Bill.” In response, although the South Carolina legislature voted to rescind its nullification of the tariff acts, it also nullified Jackson’s Force Bill. By then the nullification of the Force Bill was a moot point, but it allowed South Carolina to feel a small taste of victory. However, the issues of nullification and secession had stirred the first rumblings that would eventually lead to the Civil War.
Tariff of 1828
Andrew Jackson was elected as President of the United States because the American people saw him as the “everyman.” His leadership during the Battle of New Orleans in 1815 gave him the respect of wealthy businessmen, and his simple roots resonated with those who were struggling to carve their own niche. However, his popularity did not ensure that he would avoid scandal and resentment during his presidency.
Jackson’s supporters, angry over John Quincy Adams’ win in the 1824 election, strategized to sabotage his presidency. They pushed a proposal through Congress that would raise tariffs significantly on manufactured items such as wool and textiles. Since Adams was a New Englander and any hike in tariff duties would be enthusiastically supported there, Jacksonians hoped to portray Adams as favoring his home region over the south and west.
The Jacksonians expected a backlash from their somewhat outrageous tariff proposal, which was exactly their purpose. They hoped to push this tariff through to embarrass Adams and his administration and to assist Jackson in getting elected in 1828.
As it turned out, Jackson did not need the tariff to be elected; his popularity got him elected in 1828. However, the proposal was still on the table. It finally passed in 1828, and instead of being an embarrassment to Adams, it wreaked havoc during Jackson’s presidency and came to be called the “Tariff of Abominations.”
When the tariff went into effect, Southerners complained long and loudly. While other parts of the country were experiencing a boom, the economy in the south was stalling. Manufacturing interests, especially in the north, could gain assistance from a “protective tariff,” but Southerners felt the financial strain of the tariffs due to their reliance on northern commodities. Residents of the south felt they were being treated unfairly, and they rallied against the Tariff of 1828 and against Jackson himself.
South CarolinaSouth Carolina, in particular, acted out against the Tariff of 1828. South Carolinans campaigned heavily against the tariff, justifying their arguments with the principles set out in the Kentucky and Virginia Resolutions written in the previous century by Jefferson and Madison to support states’ rights. They also supported their case by arguing that the U.S. Constitution allowed states to individually nullify federal laws for the whole union.
The South Carolina legislature published a pamphlet titled “The South Carolina Exposition,” which offered persuasive arguments for nullifying the Tariff of 1828, stating that it was unjust and unconstitutional. South Carolina eventually revealed that the author of “The South Carolina Exposition” was none other than John C. Calhoun, Vice President of the United States. Calhoun was raised in South Carolina and supported the efforts to nullify the Tariff of 1828.
Supporters of nullification, who came to be known as the “nullies,” attempted to pass nullification through the South Carolina state legislature, but their efforts were impeded by the Unionists, a small but determined group of men who believed that states did not hold nullification rights. Although other states made rumblings about joining South Carolina’s cause, none ever actually did, and South Carolina fought the tariff battle alone.
The nullification cause benefited from Calhoun’s leadership. Calhoun was serving as Jackson’s Vice President, but he had fallen out of Jackson’s favor as his successor thanks in part to Martin Van Buren’s efforts. Van Buren, who was Secretary of State, delighted in any situation that widened the divide between Jackson and Calhoun.
One infamous situation that caused a rift between Jackson and Calhoun, and helped confirm Van Buren as Jackson’s favorite, was the Peggy Eaton affair. Peggy, the wife of Secretary of War John Eaton, had been accused of adultery prior to her marriage to John. The gossip mill speculated that Peggy had cheated on her first husband with John, causing her first husband to commit suicide. Even though John married Peggy, the shroud of dishonor stayed with her.
Jackson had lived through similar scandals surrounding his wife, Rachel. He and Rachel had married, erroneously believing that her divorce from her first husband had been finalized. When the mistake was discovered, Jackson had the divorce finalized and he and Rachel remarried, this time legally. Still, Jackson’s detractors accused Rachel of being an adulteress, and Jackson blamed those accusers for her illness and eventual death.
Not wanting Peggy Eaton and her husband to suffer the same fate, Jackson demanded that his cabinet and their wives treat Peggy as their social equal. However, Calhoun’s wife, Floride, continued to snub Eaton and directed her friends to do the same. Calhoun, hoping to keep domestic harmony, followed Floride’s lead, much to Jackson’s dismay. However Van Buren, a widower who had no worries about marital discord, was free to lavish Eaton with attention, putting him in the President’s favor.
Van Buren also took every opportunity to point out where Calhoun’s opinions differed from Jackson’s, particularly where federal aid to local projects was concerned. One major project that sought federal aid was the national road-building effort. In 1830, Congress passed a proposal for a road in Kentucky to run from Maysville to Lexington. Calhoun supported this effort and championed the use of federal dollars for the Maysville Road construction, since it would eventually be linked to a national road.
However, Jackson exercised his veto power. He acted partially out of his continued animosity for Henry Clay (whose home state would benefit entirely from the Maysville Road), and partly out of his belief that providing federal aid for a single state project was unconstitutional. Supporters of the Maysville Road project were quite angry, and they began calling Jackson “King Andrew” because they believed he had abused his power as President.
Calhoun was dismayed at Jackson’s rejection of both the Maysville Road proposal and of him as Jackson’s political successor. Jackson made his feeling clear about Calhoun on April 13, 1830, during an annual event honoring the birthday of ex-President Thomas Jefferson. During the party, at which both Jackson and Calhoun were present, every toast given extolled states’ rights—until Jackson’s turn, that is. His toast, “Our Union—It must be preserved!” left no doubt about his position, or about his opposition to Calhoun.
Calhoun immediately followed Jackson’s toast with one of his own extolling states’ rights, but for Calhoun, it was apparent that his differences with Jackson would limit his political aspirations. Still, he was determined to fight for his home state, and having lost his hopes for ascending the political ladder, Calhoun switched his focus to championing the south.
Calhoun was not the only prominent figure fighting for South Carolina’s rights. Senator Robert Y. Hayne followed Calhoun’s example of leadership during an event that would come to be known as the Hayne-Webster debate.
Hayne was serving in the Senate when a fellow senator, Samuel A. Foot of Connecticut, proposed a restriction on the sale of western lands still owned by the federal government. Believing that this proposal was an attempt to restrict western expansion and the inevitable political influence of a strong western region, Missouri Senator Thomas Hart Benton appealed to the South to join forces with him to defeat the proposal. Governor Hayne recognized the potential benefits of an alliance with the emerging west and he quickly stepped forward.
Hayne was soon drawn into a debate to justify his position. The proposal to restrict western expansion was originated by Samuel Foot, but it was the eloquent and dynamic orator Daniel Webster, a senator from Massachusetts, who engaged in verbal sparring with Hayne. Although Hayne was an able speaker in his own right, he was no match for the awe-inspiring Webster.
During the debate, Daniel Webster was able to steer Hayne toward another sensitive issue—nullification. Webster underscored nationalism and the destruction which could befall a nation that allows one state to nullify a federal law, making himself out to be a unifier and Hayne a divider. Hayne made attempts to steer the debate back to the interpretation of the Constitution regarding the sale of federal lands, but the damage was done. Daniel Webster won the debate with his argument for nationalism, and Hayne lost public support for his interpretation of the Constitution.
Tariff of 1832 and Clay’s CompromiseSouth Carolina stood firm against the Tariff of 1828 with such acts of defiance as lowering the flags to half-mast. These displays made President Jackson realize that intervention was necessary. John C. Calhoun still carried some influence with the president, who at Calhoun’s urging encouraged Congress to enact the Tariff of 1832. This new tariff reduced the rate of the Tariff of 1828. However, producers in the south remained distraught over the high tariffs and resisted this compromise, as well.
Again, the nullies asked the South Carolina legislature to nullify the tariff, which would affect the entire union. This time, the legislature agreed. In fact, the legislature went further by choosing Robert Y. Hayne as the new South Carolina governor, selecting Calhoun to fulfill Hayne’s spot in the Senate, and threatening to secede from the Union if the tariffs were not reduced.
However, President Jackson was tired of threats from the nullies, and disgusted by the idea that one state could nullify a federal law and secede from the union. His response was firm. He met their challenge by raising an army and sending it to South Carolina. Shortly after his re-election, in his annual message on December 4, 1832, Jackson stated his intention to enforce the tariff, although he too encouraged Congress to reduce the burdensome tariff rates.
Jackson followed his speech six days later with the Nullification Proclamation, which further denounced South Carolina’s action. With his army standing ready to enforce the tariff, Jackson called South Carolina’s bluff. He called upon Congress to develop a “Force Bill” to authorize his use of army personnel to enforce the tariff. Existing legislation already granted him that power, but Jackson felt that a new and specific bill would strengthen his case against South Carolina.
With South Carolina painted into a corner, Calhoun, who had resigned his vice presidency to lead the nullification cause, pleaded with his old friend Henry Clay to help him draft a solution. Clay, who had been embroiled in the scandals surrounding the 1824 presidential election, responded with a compromise proposal. Under Clay’s plan, the high tariffs that burdened the South would be reduced by ten percent over an eight-year period. The Compromise Tariff of 1833 was passed by a small minority in Congress, but it finally brought about significant tariff change.
The new rates were not as low as the Southerners would have liked, but they were more pleased with the compromise than they were with the Force Bill, which they called the “Bloody Bill.” In response, although the South Carolina legislature voted to rescind its nullification of the tariff acts, it also nullified Jackson’s Force Bill. By then the nullification of the Force Bill was a moot point, but it allowed South Carolina to feel a small taste of victory. However, the issues of nullification and secession had stirred the first rumblings that would eventually lead to the Civil War.
The Bank of the United States
Nineteenth Century BankingIn the early 1800s, the United States government did not print paper money but instead minted gold and silver coins called specie. The value of these coins was determined by the value of the metal in the coins themselves. People wanted a safe place to keep their savings of gold and silver coins, so they stored them in banks, which had strong vaults and other measures of security. The bank would give the depositor a receipt, or banknote, as a claim against the gold or silver that had been deposited. When depositors wanted to withdraw money, they would take the banknote to the bank and exchange it for coins. People did not always have to withdraw their money to make purchases, because often sellers would accept the banknotes as payment. Thus banknotes circulated from hand to hand while the gold and silver that backed them, or guaranteed their value, remained in the bank.
Banks often accumulated very large deposits of gold and silver from many individual depositors. Since most of this gold and silver never left the vault, banks would loan out a portion of it for a fee in interest, defraying their costs for operating the bank, while making a profit for themselves. When a bank made a loan it generally issued banknotes, again redeemable for coin, to the borrower. Consequently, a bank would have not only the original depositor’s receipts circulating as money but also the banknotes it had loaned, resulting in more banknotes circulating than it had coins to cover them. Of course, the bank would be holding valuable interest-bearing debts in the form of loans and mortgages, but these were payable in the future, often over many years, while the bank was obligated to redeem its banknotes for coin money on demand.
If the slow and steady income from loans and mortgages no longer satisfied those holding notes, then the bank could become bankrupt. In the ensuing legal troubles many people might lose their savings and the bank’s notes would become worthless, which could be a serious economic blow to both individuals and communities. Therefore, it was very important for banks to keep the public confidence in order to avoid a “run” on the bank where many worried holders of the bank’s notes might try to withdraw their coins all at once.
A conservative loan policy was the best long-range tool not only to keep the public confidence, but also to foster safe development of the economy. There were many pressures on a bank to loan more than it should, however. The biggest pressure was the potential for profit. In theory, the more a bank loaned, the more interest it was owed and the more money it made. But again, this depended on people not removing their coins from the bank. An additional pressure on banks in the early nineteenth century was the great need for capital to expand industry, develop the frontier, and improve such infrastructure as roads and canals. As a source for the large sums of money needed, banks played a vital role in development activities that could not have been financed by individual lenders. Loaning investment capital was a public benefit, but bankers were often pressured to make loans for the civic good that were neither wise for the bank, nor in the long run wise for the public.
For example, one banking practice that was detrimental to the economy could occur when there was a strong market for agricultural products one year. The following year, farmers would pressure banks for loans to expand their operations. In light of the previous year’s record, this would look like a good investment to a bank, which would be inclined to lend more than it normally would to farmers. If the farmers produced a heavy crop due to their improvements, their produce might exceed the demand on the open market, causing prices to drop. Farmers’ net revenue might then be no more than before the bank financed their expansion. Unfortunately, they still would have loan payments to make. This additional burden might cause them to reduce their spending and perhaps contract their operations. Some farmers could even be forced into defaulting on their loans and lose their farms, causing the bank to lose the money it loaned as well as the interest it would have made.
After several years of this process, agricultural products might become scarce and prices for them would rise. Farmers would want to cash in on the new boom with a loan for expansion, and the cycle would begin again. This same process could take place in any area of production or manufacturing. While investment capital is a good thing, excessive speculative lending has the effect of producing a roller coaster, boom-and-bust economy that is less productive for everyone than a more even-growth economy fostered by cautious lending habits.
Following the War of 1812, the United States entered an era of strong economic growth. Trade and industry flourished and grew, while at the same time the western frontier expanded with settlement and farming. These activities often required large sums for investment, a safe place to store earnings, and a regulated means to transfer money or credit from bank to bank or region to region. Banks provided all of these services.
State and federal governments also needed repositories for their funds. States, therefore, chartered banks within their territory to handle their government’s financial transactions. These state-chartered banks were not owned by the state but were privately held. Their state charter gave them certain advantages over ordinary banks but also subjected them to additional oversight by the state. They were therefore generally well-regulated, responsibly managed institutions that also provided banking services for individuals and businesses. Additionally, there were many smaller, local banks, most of which were responsible, though some were inclined to overextend credit and put their depositors’ funds at risk.
State banks regulated the credit practices of smaller banks by redeeming for gold any of the smaller banks’ notes that were passed to the state bank as a loan or mortgage payment. This practice required the smaller banks to be prepared to pay out from their deposits. They were consequently less likely to allow an excessive number of their banknotes to be in circulation. A state bank could also loan money to smaller banks to help them through a crisis if the smaller bank was financially sound, which encouraged responsible lending practices in smaller banks.
The BankOne area of particular concern among bankers, businessmen, and government leaders was banking on the frontier. Frontier land was cheap, and speculators would buy large tracts expecting the price to go up as settlers entered the region. In order to finance their investments, speculators borrowed as much as they could from “wildcat” banks that sprang up to cater to this demand. These banks were themselves often speculative in nature, being more interested in making a fast dollar than building a secure banking business. Their excessive loan practices caused many more banknotes to be in circulation in the United States than there were deposits to cover them. Hard-pressed banks were sometimes forced to suspend specie payments to depositors and noteholders wanting to withdraw coins. Confidence in banknotes dropped, causing them to lose value, and more of them were needed to purchase the same amount of goods.
A similar situation of unstable currency had existed after the Revolutionary War. Alexander Hamilton as Secretary of Treasury proposed a national bank that would issue banknotes of stable value. Among other benefits, Hamilton felt such a bank would tie the interests of the wealthy to the interests of the government and, therefore, to Americans in general. The federal government would supply one-fifth of the new bank’s initial capital, much of it in government bonds. Private investors would supply the other four-fifths. After much debate, Congress created the First Bank of the United States, and President Washington signed it into law amid grave misgivings in 1791. Thomas Jefferson had opposed the bank saying it vastly exceeded what was specified in the Constitution and that it opened “a boundless field of power, no longer susceptible of any definition.” Hamilton countered that the power to charter corporations was inherent in government and that the Constitution authorized Congress to pass any laws “necessary and proper for carrying into execution . . . powers vested by the Constitution in the government of the United States.” (Art. I, Sec. VIII, para.18) This provision came to be known as the “elastic clause” for its opening to a broad interpretation or “loose construction” of the powers granted to the government by the Constitution. The Bank’s charter ran out in 1811 and was allowed to lapse because of a turn of the political tide in favor of strict construction as well as deep concerns over the large proportion of British ownership in the Bank. Absence of a central bank hurt trade and hampered the war effort in 1812.
Inflation and the risk-taking behavior of frontier banks threatened the nation’s financial stability. Frontier banks were beyond the regulatory reach of the state banks, however, because the state banks had no means to compel banks outside their state to exchange their notes for specie. In addition, on the frontier there was no cooperative network of banks to ensure sound practices as there was from one state to another. This situation prompted the federal government to charter the Second Bank of the United States in 1816. Like state banks and the First Bank of the United State, the Second Bank of the United States was privately owned. All federal funds were deposited in the Bank making it a powerful source of investment capital, and its federal charter extended its reach throughout the states and into the frontier. The government intended that the Bank’s size and consistent practices would help regulate the speculative frontier banks.
Unfortunately, the first managers of the Second Bank of the United States did not understand its role in the economy. Almost immediately, the Bank fell into practices of overextending credit, especially among its western branches, which loaned ten times more banknotes than it had gold and silver on deposit. For several years a boom in frontier land values masked the danger to the country, but in 1819 land values declined and many frontier borrowers were unable to make their loan and mortgage payments. Wildcat banks were unable to meet their obligations, which created financial difficulties for their creditors and depositors, and so on throughout the economy. Foreclosures and bankruptcies were a painful reality to many in this era when the debtor’s prison was still a legal institution. The Panic of 1819 caused many business failures and was a general hardship for great numbers of people for the three years it continued.
The Second Bank of the United States had badly overextended credit, and many of its loans had defaulted in the panic, nearly causing it to fail. Only by taking the severest measures did it remain solvent. To save itself, the Bank refused to extend credit to smaller banks that were also financially in trouble. These banks, in turn, were forced to implement drastic measures such as calling in loans and foreclosing on mortgages in order to stay afloat. Though these steps saved the financial structures and institutions that supported the economy, they were hard on many individuals and businesses and even caused failures among banks. Consequently, public opinion was critical of the Second Bank of the United States in the aftermath of the panic.
In addition, many state banks felt that their authority to regulate credit within their state was threatened by a national bank such as the Second Bank of the United States. The State Bank of Maryland persuaded the Maryland Legislature to impose a tax on out-of-state banks, including the Second Bank of the United States. The federal government refused to pay the tax, whereupon Maryland sued the head cashier at the Maryland branch of the Bank of the United States, John W. McCulloch.
The case of McCulloch v. Maryland went to the U.S. Supreme Court, which was led by Chief Justice John Marshall. The Court ruled in favor of McCulloch. In writing the majority opinion, Marshall stated that “a power to create implies a power to preserve.” By this he meant that the government has the right to exercise its power and authority to protect an entity that it has legally created. Marshall went on to say, “the power to tax involves the power to destroy,” by which he conveyed the court’s opinion that a state government has no authority to exercise destructive power over a legitimate and constitutional entity chartered by the federal government.
Another significant aspect of the McCulloch case was Marshall’s defining the doctrine of “loose construction” of the Constitution. Loose construction allows the government to act outside what is specifically stated in the Constitution. Previously many people, particularly Jefferson and the Republicans, had insisted on “strict construction,” whereby the federal government is confined to do exactly what is expressly stated in the Constitution, no more and no less. Marshall argued, however, that the Constitution was derived from the consent of the people and this allowed the government to act for the people’s benefit. He also stated that the tenets of the Constitution were not strictly set but were adaptable to circumstances and that whatever means were appropriate to achieve a desirable end, so long as they were not prohibited or morally wrong, were within the bounds of the intent of the Constitution. Often using Hamilton’s exact words, Marshall’s argument for a broad interpretation of the Constitution expanded the powers of the federal government. In particular, Marshall upheld the legality and appropriateness of the creation of the Second Bank of the United States by the federal government.
Jackson and the Bank WarIn its first years, the Second Bank of the United States weathered an economic panic and an important court case. These were not, however, to be the last of its troubles. Other forces were at work that would oppose and eventually destroy the Second Bank of the United States.
Early in the 1820s, Henry Clay, a representative from Kentucky and political rival of Jackson, advocated and helped implement what became known as the American System for developing a strong national economy. This system had three parts: tariffs to generate income and protect U.S. businesses, a transportation system of roads and canals, and a strong banking system that could make loans for large projects. Clay felt that the Second Bank of the United States was an indispensable part of this plan, and he approved the Bank’s now-cautious approach to credit and banking.
Following the Panic of 1819, the Second Bank of the United States functioned to stabilize the economy. It prevented the worst of the cycles of boom and bust that characterized this volatile period, by restraining unsound lending practices of smaller banks, especially the frontier wildcat banks. Since the Federal government deposited its substantial revenues of gold and silver in the Bank of the United States, the notes that the Bank issued were more uniform and stable in value than the notes of other banks.
The Second Bank of the United States was not a government-owned bank, but a privately chartered institution headed at that time by Nicholas Biddle. Through his policies, Biddle was able to force smaller banks to refrain from excessive printing of banknotes, which was a major contributor to inflation. Requiring other smaller banks to maintain adequate reserves prevented bank failures that were ruinous to businesses and individuals alike. Though restrained from potentially making larger profits, the banking industry was healthier overall, which helped to insure public confidence in the financial system and uninterrupted growth of the economy.
Some people, however, felt that the Bank, and in particular its president Nicholas Biddle, had too much power to restrict the speculative and potentially profitable business dealings of smaller banks. Westerners were especially critical of the Bank because they felt it suppressed their opportunities while it bolstered the economy of the manufacturing East. Many people also believed that the Bank had the potential to be abused since a private bank is not accountable to the people. Its size and its favored status as the repository of Federal funds enabled the Bank to reap substantial profits for itself through loans to large businesses. The idea of the citizens’ money going into a private bank to be lent out for a profit for the bank’s owners seemed undemocratic and contrary to the ideals of the new Republic. Resentment was also high that the federal deposits that made the Bank so much money did not earn the public coffers any interest.
Many people also disapproved of the fact that the Bank’s stockholders included a substantial number of foreign owners. The idea that foreign nationals could wield political and economic power in the United States due to their influence over the Bank, and consequently over the U.S. economy, was a powerful argument against the Bank. The fact that the Bank had made loans and provided other advantages to politicians who supported it added to public worries over the wisdom of such a national bank.
In 1828, Andrew Jackson was elected president on the Democratic Party ticket. He was a war hero and, though he began life in poverty, by the time he moved to Washington he was a wealthy plantation owner in Tennessee. Jackson was often portrayed as a rude backwoodsman, but in fact he was neither ignorant nor crude. His sympathies were with those who lived in the south and the west, in diametric opposition to those in the north and the east.
New Englanders were suspicious of Jackson because their livelihood and future lay in manufacturing, which benefited from high tariffs and financial coordination through central authority. The South, where there was little manufacturing, suffered high prices on account of import tariffs, and the West chafed under the regulatory thumb of the Second Bank of the United States. To frontier businessmen, the Bank was stealing their financial resources by demanding specie payments for the banknotes of frontier banks. They also resented what they considered to be the Bank’s stifling of opportunity. If they engaged in speculation that might be highly profitable but also included risk, they felt this was their business and they should be free to do as they wished.
Frontiersmen felt a government that was so far away and had so little to do with their lives should not be able to dictate business practices to them. They found the idea of loose interpretation of the Constitution as defined by Chief Justice John Marshall to be repellent and dangerous. Westerners felt they were on the losing side of loose construction and heartily believed the government should stick to exactly what was enumerated in the Constitution and no more. Jackson agreed with the Westerners that the lives and fortunes of Americans should not be dictated by government let alone a bank, and especially one that was not even a public entity.
Americans’ strong and opposing opinions over the Bank of the United States made for an ideal political rallying point. Years before, Henry Clay had endorsed the Bank as one of the pillars of the American System of economic growth and nation building. He now had aspirations for the presidency in 1832 on the Whig ticket, and the Second Bank of the United States became a pawn in the game of election politics.
Predictably, for both philosophical and political reasons, Jackson came down against the Bank, calling it “the moneyed monster.” He claimed the Bank was an illegal monopoly, and vowed that if he were re-elected he would not renew the Bank’s charter when it ran out in 1836. The stage was set for a political battle, called the Bank War, over the Bank of the United States.
Though the Bank’s 20-year charter would not end for more than four years, Daniel Webster and Henry Clay sent a bill through Congress in 1832 to renew the Bank’s charter immediately. Clay felt that this would hurt Jackson’s chances for re-election because if Jackson signed the bill and renewed the charter, he would anger his powerful western constituency, which felt economically restrained by the Bank. But if Jackson refused to sign the bill, he would lose the support of wealthy eastern businessmen. Jackson bitterly commented, “The Bank is trying to kill me, but I will kill it!”
The bill to renew the Bank’s charter passed Congress, but Jackson refused to sign it, calling the Bank unconstitutional even though the Supreme Court had upheld the Bank’s constitutionality thirteen years before inMcCulloch v. Maryland. Until this time, U.S. presidents had made a point to defer to the intent of the Founding Fathers for equality among the executive, legislative, and judicial branches. By vetoing the recharter bill, and thus dooming the Bank, Jackson rejected the decision of the Supreme Court and overrode the will of the Congress. In this way he exercised the innately greater power of the executive branch of government over the other two branches and coincidentally earned himself the nickname of King Andrew I. Ironically, Nicholas Biddle, president of the Bank, had earlier been labeled Czar Nicholas I. Thus the two presidents, one of government and one of business, were metaphorically criticized for their arrogance in wielding power.
Andrew Jackson’s presidential victory over Henry Clay in 1832 led him to believe that the people had given him a mandate concerning immediate destruction of the Bank. Though its charter would not run out until 1836, in 1833 Jackson ordered Secretary of Treasury Roger B. Taney to methodically remove all federal funds from the Bank by using them as the government’s operating capital. In addition, no new government funds were to be deposited with the Bank. Instead, new funds were to be deposited in various state banks, which came to be known as “pet banks.”
Within just a few months, federal deposits in the Second Bank of the United States dropped by half. Fearful that the Bank now had more notes circulating than could be supported by its deposits and desperate to save the Bank, Biddle called in many of the Bank’s loans, especially those to other banks. This unexpected demand placed a hardship on smaller banks and businesses, driving some to bankruptcy and causing a minor financial downturn called “Biddle’s Panic.” Biddle was criticized for the severity of his actions, but even so the Bank was nearly failing by the time its federal charter ran out in 1836. It was then rechartered as the State Bank of Philadelphia.
With the stabilizing influence of the Second Bank of the United States gone, many banks resumed their old habits of overextending credit and printing too many banknotes. This caused paper currency to become unreliable, and speculative loaning, especially in the West, mushroomed to dangerous levels. In order to rein in this printing and lending spree, Jackson had the Treasury issue a Specie Circular—an order to other banks that only specie (metallic gold or silver money) might be used to purchase public land on the frontier. The Specie Circular had such a negative effect on land sales that it triggered a recession in 1837.
Jackson’s presidential term ended in 1836. Popular with the people to the end, his immediate economic legacy was fiscal instability for the country, which resulted in the Panic of 1837 during his successor, Martin Van Buren’s, presidency. His unshakable opinion remained, however, that over the long term an immensely powerful national bank held in private hands was a danger to democracy.
After the Panic of 1837, Van Buren separated government from banking by creating a government treasury to safeguard federal money. This move was generally unpopular since it removed federal funds from the state banks and reduced the pool of capital available for lending. Nevertheless, the Independent Treasury Bill passed Congress in 1840, and the institution continued until the twentieth century when it became part of the Federal Reserve System.
Nineteenth Century BankingIn the early 1800s, the United States government did not print paper money but instead minted gold and silver coins called specie. The value of these coins was determined by the value of the metal in the coins themselves. People wanted a safe place to keep their savings of gold and silver coins, so they stored them in banks, which had strong vaults and other measures of security. The bank would give the depositor a receipt, or banknote, as a claim against the gold or silver that had been deposited. When depositors wanted to withdraw money, they would take the banknote to the bank and exchange it for coins. People did not always have to withdraw their money to make purchases, because often sellers would accept the banknotes as payment. Thus banknotes circulated from hand to hand while the gold and silver that backed them, or guaranteed their value, remained in the bank.
Banks often accumulated very large deposits of gold and silver from many individual depositors. Since most of this gold and silver never left the vault, banks would loan out a portion of it for a fee in interest, defraying their costs for operating the bank, while making a profit for themselves. When a bank made a loan it generally issued banknotes, again redeemable for coin, to the borrower. Consequently, a bank would have not only the original depositor’s receipts circulating as money but also the banknotes it had loaned, resulting in more banknotes circulating than it had coins to cover them. Of course, the bank would be holding valuable interest-bearing debts in the form of loans and mortgages, but these were payable in the future, often over many years, while the bank was obligated to redeem its banknotes for coin money on demand.
If the slow and steady income from loans and mortgages no longer satisfied those holding notes, then the bank could become bankrupt. In the ensuing legal troubles many people might lose their savings and the bank’s notes would become worthless, which could be a serious economic blow to both individuals and communities. Therefore, it was very important for banks to keep the public confidence in order to avoid a “run” on the bank where many worried holders of the bank’s notes might try to withdraw their coins all at once.
A conservative loan policy was the best long-range tool not only to keep the public confidence, but also to foster safe development of the economy. There were many pressures on a bank to loan more than it should, however. The biggest pressure was the potential for profit. In theory, the more a bank loaned, the more interest it was owed and the more money it made. But again, this depended on people not removing their coins from the bank. An additional pressure on banks in the early nineteenth century was the great need for capital to expand industry, develop the frontier, and improve such infrastructure as roads and canals. As a source for the large sums of money needed, banks played a vital role in development activities that could not have been financed by individual lenders. Loaning investment capital was a public benefit, but bankers were often pressured to make loans for the civic good that were neither wise for the bank, nor in the long run wise for the public.
For example, one banking practice that was detrimental to the economy could occur when there was a strong market for agricultural products one year. The following year, farmers would pressure banks for loans to expand their operations. In light of the previous year’s record, this would look like a good investment to a bank, which would be inclined to lend more than it normally would to farmers. If the farmers produced a heavy crop due to their improvements, their produce might exceed the demand on the open market, causing prices to drop. Farmers’ net revenue might then be no more than before the bank financed their expansion. Unfortunately, they still would have loan payments to make. This additional burden might cause them to reduce their spending and perhaps contract their operations. Some farmers could even be forced into defaulting on their loans and lose their farms, causing the bank to lose the money it loaned as well as the interest it would have made.
After several years of this process, agricultural products might become scarce and prices for them would rise. Farmers would want to cash in on the new boom with a loan for expansion, and the cycle would begin again. This same process could take place in any area of production or manufacturing. While investment capital is a good thing, excessive speculative lending has the effect of producing a roller coaster, boom-and-bust economy that is less productive for everyone than a more even-growth economy fostered by cautious lending habits.
Following the War of 1812, the United States entered an era of strong economic growth. Trade and industry flourished and grew, while at the same time the western frontier expanded with settlement and farming. These activities often required large sums for investment, a safe place to store earnings, and a regulated means to transfer money or credit from bank to bank or region to region. Banks provided all of these services.
State and federal governments also needed repositories for their funds. States, therefore, chartered banks within their territory to handle their government’s financial transactions. These state-chartered banks were not owned by the state but were privately held. Their state charter gave them certain advantages over ordinary banks but also subjected them to additional oversight by the state. They were therefore generally well-regulated, responsibly managed institutions that also provided banking services for individuals and businesses. Additionally, there were many smaller, local banks, most of which were responsible, though some were inclined to overextend credit and put their depositors’ funds at risk.
State banks regulated the credit practices of smaller banks by redeeming for gold any of the smaller banks’ notes that were passed to the state bank as a loan or mortgage payment. This practice required the smaller banks to be prepared to pay out from their deposits. They were consequently less likely to allow an excessive number of their banknotes to be in circulation. A state bank could also loan money to smaller banks to help them through a crisis if the smaller bank was financially sound, which encouraged responsible lending practices in smaller banks.
The BankOne area of particular concern among bankers, businessmen, and government leaders was banking on the frontier. Frontier land was cheap, and speculators would buy large tracts expecting the price to go up as settlers entered the region. In order to finance their investments, speculators borrowed as much as they could from “wildcat” banks that sprang up to cater to this demand. These banks were themselves often speculative in nature, being more interested in making a fast dollar than building a secure banking business. Their excessive loan practices caused many more banknotes to be in circulation in the United States than there were deposits to cover them. Hard-pressed banks were sometimes forced to suspend specie payments to depositors and noteholders wanting to withdraw coins. Confidence in banknotes dropped, causing them to lose value, and more of them were needed to purchase the same amount of goods.
A similar situation of unstable currency had existed after the Revolutionary War. Alexander Hamilton as Secretary of Treasury proposed a national bank that would issue banknotes of stable value. Among other benefits, Hamilton felt such a bank would tie the interests of the wealthy to the interests of the government and, therefore, to Americans in general. The federal government would supply one-fifth of the new bank’s initial capital, much of it in government bonds. Private investors would supply the other four-fifths. After much debate, Congress created the First Bank of the United States, and President Washington signed it into law amid grave misgivings in 1791. Thomas Jefferson had opposed the bank saying it vastly exceeded what was specified in the Constitution and that it opened “a boundless field of power, no longer susceptible of any definition.” Hamilton countered that the power to charter corporations was inherent in government and that the Constitution authorized Congress to pass any laws “necessary and proper for carrying into execution . . . powers vested by the Constitution in the government of the United States.” (Art. I, Sec. VIII, para.18) This provision came to be known as the “elastic clause” for its opening to a broad interpretation or “loose construction” of the powers granted to the government by the Constitution. The Bank’s charter ran out in 1811 and was allowed to lapse because of a turn of the political tide in favor of strict construction as well as deep concerns over the large proportion of British ownership in the Bank. Absence of a central bank hurt trade and hampered the war effort in 1812.
Inflation and the risk-taking behavior of frontier banks threatened the nation’s financial stability. Frontier banks were beyond the regulatory reach of the state banks, however, because the state banks had no means to compel banks outside their state to exchange their notes for specie. In addition, on the frontier there was no cooperative network of banks to ensure sound practices as there was from one state to another. This situation prompted the federal government to charter the Second Bank of the United States in 1816. Like state banks and the First Bank of the United State, the Second Bank of the United States was privately owned. All federal funds were deposited in the Bank making it a powerful source of investment capital, and its federal charter extended its reach throughout the states and into the frontier. The government intended that the Bank’s size and consistent practices would help regulate the speculative frontier banks.
Unfortunately, the first managers of the Second Bank of the United States did not understand its role in the economy. Almost immediately, the Bank fell into practices of overextending credit, especially among its western branches, which loaned ten times more banknotes than it had gold and silver on deposit. For several years a boom in frontier land values masked the danger to the country, but in 1819 land values declined and many frontier borrowers were unable to make their loan and mortgage payments. Wildcat banks were unable to meet their obligations, which created financial difficulties for their creditors and depositors, and so on throughout the economy. Foreclosures and bankruptcies were a painful reality to many in this era when the debtor’s prison was still a legal institution. The Panic of 1819 caused many business failures and was a general hardship for great numbers of people for the three years it continued.
The Second Bank of the United States had badly overextended credit, and many of its loans had defaulted in the panic, nearly causing it to fail. Only by taking the severest measures did it remain solvent. To save itself, the Bank refused to extend credit to smaller banks that were also financially in trouble. These banks, in turn, were forced to implement drastic measures such as calling in loans and foreclosing on mortgages in order to stay afloat. Though these steps saved the financial structures and institutions that supported the economy, they were hard on many individuals and businesses and even caused failures among banks. Consequently, public opinion was critical of the Second Bank of the United States in the aftermath of the panic.
In addition, many state banks felt that their authority to regulate credit within their state was threatened by a national bank such as the Second Bank of the United States. The State Bank of Maryland persuaded the Maryland Legislature to impose a tax on out-of-state banks, including the Second Bank of the United States. The federal government refused to pay the tax, whereupon Maryland sued the head cashier at the Maryland branch of the Bank of the United States, John W. McCulloch.
The case of McCulloch v. Maryland went to the U.S. Supreme Court, which was led by Chief Justice John Marshall. The Court ruled in favor of McCulloch. In writing the majority opinion, Marshall stated that “a power to create implies a power to preserve.” By this he meant that the government has the right to exercise its power and authority to protect an entity that it has legally created. Marshall went on to say, “the power to tax involves the power to destroy,” by which he conveyed the court’s opinion that a state government has no authority to exercise destructive power over a legitimate and constitutional entity chartered by the federal government.
Another significant aspect of the McCulloch case was Marshall’s defining the doctrine of “loose construction” of the Constitution. Loose construction allows the government to act outside what is specifically stated in the Constitution. Previously many people, particularly Jefferson and the Republicans, had insisted on “strict construction,” whereby the federal government is confined to do exactly what is expressly stated in the Constitution, no more and no less. Marshall argued, however, that the Constitution was derived from the consent of the people and this allowed the government to act for the people’s benefit. He also stated that the tenets of the Constitution were not strictly set but were adaptable to circumstances and that whatever means were appropriate to achieve a desirable end, so long as they were not prohibited or morally wrong, were within the bounds of the intent of the Constitution. Often using Hamilton’s exact words, Marshall’s argument for a broad interpretation of the Constitution expanded the powers of the federal government. In particular, Marshall upheld the legality and appropriateness of the creation of the Second Bank of the United States by the federal government.
Jackson and the Bank WarIn its first years, the Second Bank of the United States weathered an economic panic and an important court case. These were not, however, to be the last of its troubles. Other forces were at work that would oppose and eventually destroy the Second Bank of the United States.
Early in the 1820s, Henry Clay, a representative from Kentucky and political rival of Jackson, advocated and helped implement what became known as the American System for developing a strong national economy. This system had three parts: tariffs to generate income and protect U.S. businesses, a transportation system of roads and canals, and a strong banking system that could make loans for large projects. Clay felt that the Second Bank of the United States was an indispensable part of this plan, and he approved the Bank’s now-cautious approach to credit and banking.
Following the Panic of 1819, the Second Bank of the United States functioned to stabilize the economy. It prevented the worst of the cycles of boom and bust that characterized this volatile period, by restraining unsound lending practices of smaller banks, especially the frontier wildcat banks. Since the Federal government deposited its substantial revenues of gold and silver in the Bank of the United States, the notes that the Bank issued were more uniform and stable in value than the notes of other banks.
The Second Bank of the United States was not a government-owned bank, but a privately chartered institution headed at that time by Nicholas Biddle. Through his policies, Biddle was able to force smaller banks to refrain from excessive printing of banknotes, which was a major contributor to inflation. Requiring other smaller banks to maintain adequate reserves prevented bank failures that were ruinous to businesses and individuals alike. Though restrained from potentially making larger profits, the banking industry was healthier overall, which helped to insure public confidence in the financial system and uninterrupted growth of the economy.
Some people, however, felt that the Bank, and in particular its president Nicholas Biddle, had too much power to restrict the speculative and potentially profitable business dealings of smaller banks. Westerners were especially critical of the Bank because they felt it suppressed their opportunities while it bolstered the economy of the manufacturing East. Many people also believed that the Bank had the potential to be abused since a private bank is not accountable to the people. Its size and its favored status as the repository of Federal funds enabled the Bank to reap substantial profits for itself through loans to large businesses. The idea of the citizens’ money going into a private bank to be lent out for a profit for the bank’s owners seemed undemocratic and contrary to the ideals of the new Republic. Resentment was also high that the federal deposits that made the Bank so much money did not earn the public coffers any interest.
Many people also disapproved of the fact that the Bank’s stockholders included a substantial number of foreign owners. The idea that foreign nationals could wield political and economic power in the United States due to their influence over the Bank, and consequently over the U.S. economy, was a powerful argument against the Bank. The fact that the Bank had made loans and provided other advantages to politicians who supported it added to public worries over the wisdom of such a national bank.
In 1828, Andrew Jackson was elected president on the Democratic Party ticket. He was a war hero and, though he began life in poverty, by the time he moved to Washington he was a wealthy plantation owner in Tennessee. Jackson was often portrayed as a rude backwoodsman, but in fact he was neither ignorant nor crude. His sympathies were with those who lived in the south and the west, in diametric opposition to those in the north and the east.
New Englanders were suspicious of Jackson because their livelihood and future lay in manufacturing, which benefited from high tariffs and financial coordination through central authority. The South, where there was little manufacturing, suffered high prices on account of import tariffs, and the West chafed under the regulatory thumb of the Second Bank of the United States. To frontier businessmen, the Bank was stealing their financial resources by demanding specie payments for the banknotes of frontier banks. They also resented what they considered to be the Bank’s stifling of opportunity. If they engaged in speculation that might be highly profitable but also included risk, they felt this was their business and they should be free to do as they wished.
Frontiersmen felt a government that was so far away and had so little to do with their lives should not be able to dictate business practices to them. They found the idea of loose interpretation of the Constitution as defined by Chief Justice John Marshall to be repellent and dangerous. Westerners felt they were on the losing side of loose construction and heartily believed the government should stick to exactly what was enumerated in the Constitution and no more. Jackson agreed with the Westerners that the lives and fortunes of Americans should not be dictated by government let alone a bank, and especially one that was not even a public entity.
Americans’ strong and opposing opinions over the Bank of the United States made for an ideal political rallying point. Years before, Henry Clay had endorsed the Bank as one of the pillars of the American System of economic growth and nation building. He now had aspirations for the presidency in 1832 on the Whig ticket, and the Second Bank of the United States became a pawn in the game of election politics.
Predictably, for both philosophical and political reasons, Jackson came down against the Bank, calling it “the moneyed monster.” He claimed the Bank was an illegal monopoly, and vowed that if he were re-elected he would not renew the Bank’s charter when it ran out in 1836. The stage was set for a political battle, called the Bank War, over the Bank of the United States.
Though the Bank’s 20-year charter would not end for more than four years, Daniel Webster and Henry Clay sent a bill through Congress in 1832 to renew the Bank’s charter immediately. Clay felt that this would hurt Jackson’s chances for re-election because if Jackson signed the bill and renewed the charter, he would anger his powerful western constituency, which felt economically restrained by the Bank. But if Jackson refused to sign the bill, he would lose the support of wealthy eastern businessmen. Jackson bitterly commented, “The Bank is trying to kill me, but I will kill it!”
The bill to renew the Bank’s charter passed Congress, but Jackson refused to sign it, calling the Bank unconstitutional even though the Supreme Court had upheld the Bank’s constitutionality thirteen years before inMcCulloch v. Maryland. Until this time, U.S. presidents had made a point to defer to the intent of the Founding Fathers for equality among the executive, legislative, and judicial branches. By vetoing the recharter bill, and thus dooming the Bank, Jackson rejected the decision of the Supreme Court and overrode the will of the Congress. In this way he exercised the innately greater power of the executive branch of government over the other two branches and coincidentally earned himself the nickname of King Andrew I. Ironically, Nicholas Biddle, president of the Bank, had earlier been labeled Czar Nicholas I. Thus the two presidents, one of government and one of business, were metaphorically criticized for their arrogance in wielding power.
Andrew Jackson’s presidential victory over Henry Clay in 1832 led him to believe that the people had given him a mandate concerning immediate destruction of the Bank. Though its charter would not run out until 1836, in 1833 Jackson ordered Secretary of Treasury Roger B. Taney to methodically remove all federal funds from the Bank by using them as the government’s operating capital. In addition, no new government funds were to be deposited with the Bank. Instead, new funds were to be deposited in various state banks, which came to be known as “pet banks.”
Within just a few months, federal deposits in the Second Bank of the United States dropped by half. Fearful that the Bank now had more notes circulating than could be supported by its deposits and desperate to save the Bank, Biddle called in many of the Bank’s loans, especially those to other banks. This unexpected demand placed a hardship on smaller banks and businesses, driving some to bankruptcy and causing a minor financial downturn called “Biddle’s Panic.” Biddle was criticized for the severity of his actions, but even so the Bank was nearly failing by the time its federal charter ran out in 1836. It was then rechartered as the State Bank of Philadelphia.
With the stabilizing influence of the Second Bank of the United States gone, many banks resumed their old habits of overextending credit and printing too many banknotes. This caused paper currency to become unreliable, and speculative loaning, especially in the West, mushroomed to dangerous levels. In order to rein in this printing and lending spree, Jackson had the Treasury issue a Specie Circular—an order to other banks that only specie (metallic gold or silver money) might be used to purchase public land on the frontier. The Specie Circular had such a negative effect on land sales that it triggered a recession in 1837.
Jackson’s presidential term ended in 1836. Popular with the people to the end, his immediate economic legacy was fiscal instability for the country, which resulted in the Panic of 1837 during his successor, Martin Van Buren’s, presidency. His unshakable opinion remained, however, that over the long term an immensely powerful national bank held in private hands was a danger to democracy.
After the Panic of 1837, Van Buren separated government from banking by creating a government treasury to safeguard federal money. This move was generally unpopular since it removed federal funds from the state banks and reduced the pool of capital available for lending. Nevertheless, the Independent Treasury Bill passed Congress in 1840, and the institution continued until the twentieth century when it became part of the Federal Reserve System.
Chapter 11 Summary
AMERICAN COMMUNITIES: MARTIN VAN BUREN FORGES A NEW KIND OF POLITICAL COMMUNITY The son of a tavern keeper, Martin Van Buren lacked the aristocratic connections that had once been necessary for political advancement in New York. Unhappy with the old-style aristocratic and personal patronage policies of Governor DeWitt Clinton, he and his supporters pushed democratic reforms through a state constitutional convention. He built a democratically controlled, well-disciplined party organization that brought him political power. The vignette shows how he went on to help shape the newly emerging political system through his faith in popular democracy.
THE NEW DEMOCRATIC POLITICS IN NORTH AMERICA Throughout North America, nations and colonies were finding the local limits to popular rights.
In Mexico, elite versus popular rule remained an axis of tension, undermining government stability. Haitian independence triggered unrest throughout the Caribbean. On the islands where slavery was abolished, the sugar industry faltered. In Canada, Britain hoped to crush French Canadian hopes for independence.
At the birth of the American republic only white, male, property owners could vote in most states, and political power was concentrated in the hands of a few aristocratic leaders. As new western states came into the Union suffrage expanded. By 1820 most of the older states had dropped property qualifications and by 1840, 90 percent of adult white males could vote. While white males were increasing their opportunities for participation, racism and patriarchy prevented African Americans and women, respectively, from voting. Women continued their customary informal engagement in politics, though the increasing male franchise caused some (men) to question the appropriateness of any female involvement in politics. Still, nowhere else in the world was the right to vote so widely held.
The 1824 election marked an end to the political truce of the Era of Good Feelings. Four candidates ran for the presidency. Though Andrew Jackson had the most popular votes, John Quincy Adams won as a result of what Jackson called a “corrupt bargain.” Adams was not able to accomplish much, due to legislative opposition.
A more popular form of politics was emerging. New state organizations were built on the increased political participation, many of which worked to get Andrew Jackson elected president. New techniques of mass campaigning encouraged increased participation. Party loyalty among politicians and the public was stressed as politics became a feature of everyday life. Political parties were manifestations of the impulse to form communities; they functioned like men’s clubs, or sports teams.
In the 1828 election Jackson triumphed. His victory showed the strength of this new system based on a national party made up of a coalition of the North, South, and West.
THE JACKSON PRESIDENCY Though Jackson himself was no commoner, his presidency ushered in the “Age of the Common Man.”
In many respects Jackson symbolized the possibilities of personal advancement that the frontier offered. His inauguration brought out a mob of exuberant well-wishers.
He was a strong executive who largely ignored his cabinet. Jackson strengthened the presidency by using the veto more frequently than had all of his predecessors combined.
Jackson overrode sectional interests and had national appeal. In contrast, Congress was dominated by popular sectional figures: John C. Calhoun of the South, Daniel Webster of the North, and Henry Clay of the West. These sectional leaders were all rivals of Jackson’s.
In part due to constitutional ambiguity, sectional interests, and the states’ rights issue, political controversies arose. The largest issue was tariffs. The 1828 “Tariff of Abominations” elicited a strong reaction from South Carolina. Southerners argued that the tariff was an unconstitutional effort to enrich the North at Southern expense. Calhoun wrote a defense of the doctrine of nullification whereby states could refuse to enforce laws they deemed unconstitutional. South Carolina nullified the 1833 tariff and threatened to secede. Jackson considered it treason and obtained from Congress a bill to enable the federal government to collect the tariff, at gunpoint if necessary. Henry Clay engineered a compromise tariff that ended the threat of civil war.
CHANGING THE COURSE OF GOVERNMENT Jackson was able to enact much of his agenda, but the opposition he faced revealed the limits of presidential power.
Jackson embraced the policy of Indian cession of their lands and removal west of the Mississippi River. The five Civilized Tribes of the South were most affected. Even though the Cherokee had adopted white ways and accepted white culture, Jackson pressed for removal. He defied the Supreme Court when it ruled in favor of the Cherokee Indians in their efforts to prevent Georgia from pushing them out along the brutal “Trail of Tears.” The Black Hawk “war” was the final chapter in the removal of the Fox and Sawk Indians from the Old Northwest. Northerners and women strongly opposed removal.
Jackson’s veto of the Maysville Road Bill of 1830 was a defeat for western rival Henry Clay, but an unpleasant surprise for Jackson’s western supporters. Jackson opposed federal funding for transportation, arguing that this was a state responsibility. Private developers and the states underwrote extensive internal improvements, but the system was wasteful.
Around 1820, two Supreme Court decisions handed down by Chief Justice John Marshall reduced state power while aiding private enterprise and strengthening the federal role. Meanwhile, new state laws facilitated commercial growth.
Chartered in 1816, the Second Bank of the United States was a quasi-private institution. It had acted as a currency stabilizer. Western farmers and speculators (like Jackson) feared its power. When Clay and Webster pushed for early rechartering, Jackson saw it as a personal attack and vowed to kill the Bank. Jackson’s veto message denounced the Bank as the institution of a privileged elite. Financial leaders accused Jackson of reckless demagoguery, and his veto fanned sectional flames.
In the election of 1832 Jackson soundly defeated Henry Clay whom Democrats portrayed as the defender of the Bank and privilege. After his victory, Jackson withdrew federal deposits and placed them in “pet” banks. Critics denounced the move. But Jackson claimed that he alone was the direct representative of the people and could act regardless of Congressional opinion. This controversy was instrumental in the formation of the modern two-party system.
In response to the removal of federal funds, the Bank called in commercial loans, causing a recession. Jackson’s opponents founded an opposition party—the Whigs. The new party lost the 1936 election to Martin Van Buren. The death of the Bank led to a period of feverish speculation, followed by the Panic of 1837. The depression that resulted led to great hardship and gave the newly formed Whig Party its opportunity.
The Panic of 1837 was caused by both the expiration of the Bank, and foreign investors. The federal government did nothing to help victims of the ensuing recession, nor did the federal government attempt to intervene to try to jump-start the economy, because crashes were thought to be a necessary part of the business cycle. Martin Van Buren was nicknamed “Van Ruin” because of the poor state of the economy under his presidency.
THE SECOND AMERICAN PARTY SYSTEM The basic pattern of American politics – two major parties, each appealing to at least some members of all classes and residents of all regions – emerged out of the Jeffersonian political struggles.
By the 1830s, the second American party system was based on mass national appeal. The differences between Whigs and Democrats reflected emerging class and cultural differences. Whigs drew strength from those groups favoring government intervention in economic and social affairs and who had benefited from commercial agriculture and industrialization. Democrats drew strength from small farmers and urban workers who opposed rapid social and economic change. But both parties were coalitions, representing diverse interests.
In the election of 1840 Whigs portrayed their candidate, William Henry Harrison, as a humble man. Whigs won a sweeping electoral victory in a campaign with 80 percent voter turnout.
But the Whig triumph was short-lived. Harrison died a month after his inauguration and Vice President John Tyler assumed office. A former Democrat, Tyler had broken with Jackson for personal reasons. Tyler vetoed a series of bills that would have institutionalized the Whig-supported American System.
AMERICAN ARTS AND LETTERS National themes emerged in literature and arts, contributing to the formation of a national identity.
Steam-powered presses and the telegraph helped facilitate a communications revolution. “Penny papers” were important elements of urban culture. Religious literature was increasingly supplemented by magazines and novels. Timely information could be dispersed over great distances by telegraph, expanding the sense of national community.
Northeastern coastal cities created cultural institutions. A distinctly American literature was being created by writers such as Washington Irving, James Fenimore Cooper, and Ralph Waldo Emerson.
Artists such as Albert Bierstedt and George Caleb Bingham drew upon dramatic themes from the American landscape and lifestyles. Architects rarely worried about creating a legacy for the future. While neoclassical remained the style for public buildings, balloon frame construction enabled Americans to build homes at a rapid clip.
CONCLUSION At first glance it would seem that the new national feeling had swept aside localism. But sectional forces threatened political unity.
AMERICAN COMMUNITIES: MARTIN VAN BUREN FORGES A NEW KIND OF POLITICAL COMMUNITY The son of a tavern keeper, Martin Van Buren lacked the aristocratic connections that had once been necessary for political advancement in New York. Unhappy with the old-style aristocratic and personal patronage policies of Governor DeWitt Clinton, he and his supporters pushed democratic reforms through a state constitutional convention. He built a democratically controlled, well-disciplined party organization that brought him political power. The vignette shows how he went on to help shape the newly emerging political system through his faith in popular democracy.
THE NEW DEMOCRATIC POLITICS IN NORTH AMERICA Throughout North America, nations and colonies were finding the local limits to popular rights.
In Mexico, elite versus popular rule remained an axis of tension, undermining government stability. Haitian independence triggered unrest throughout the Caribbean. On the islands where slavery was abolished, the sugar industry faltered. In Canada, Britain hoped to crush French Canadian hopes for independence.
At the birth of the American republic only white, male, property owners could vote in most states, and political power was concentrated in the hands of a few aristocratic leaders. As new western states came into the Union suffrage expanded. By 1820 most of the older states had dropped property qualifications and by 1840, 90 percent of adult white males could vote. While white males were increasing their opportunities for participation, racism and patriarchy prevented African Americans and women, respectively, from voting. Women continued their customary informal engagement in politics, though the increasing male franchise caused some (men) to question the appropriateness of any female involvement in politics. Still, nowhere else in the world was the right to vote so widely held.
The 1824 election marked an end to the political truce of the Era of Good Feelings. Four candidates ran for the presidency. Though Andrew Jackson had the most popular votes, John Quincy Adams won as a result of what Jackson called a “corrupt bargain.” Adams was not able to accomplish much, due to legislative opposition.
A more popular form of politics was emerging. New state organizations were built on the increased political participation, many of which worked to get Andrew Jackson elected president. New techniques of mass campaigning encouraged increased participation. Party loyalty among politicians and the public was stressed as politics became a feature of everyday life. Political parties were manifestations of the impulse to form communities; they functioned like men’s clubs, or sports teams.
In the 1828 election Jackson triumphed. His victory showed the strength of this new system based on a national party made up of a coalition of the North, South, and West.
THE JACKSON PRESIDENCY Though Jackson himself was no commoner, his presidency ushered in the “Age of the Common Man.”
In many respects Jackson symbolized the possibilities of personal advancement that the frontier offered. His inauguration brought out a mob of exuberant well-wishers.
He was a strong executive who largely ignored his cabinet. Jackson strengthened the presidency by using the veto more frequently than had all of his predecessors combined.
Jackson overrode sectional interests and had national appeal. In contrast, Congress was dominated by popular sectional figures: John C. Calhoun of the South, Daniel Webster of the North, and Henry Clay of the West. These sectional leaders were all rivals of Jackson’s.
In part due to constitutional ambiguity, sectional interests, and the states’ rights issue, political controversies arose. The largest issue was tariffs. The 1828 “Tariff of Abominations” elicited a strong reaction from South Carolina. Southerners argued that the tariff was an unconstitutional effort to enrich the North at Southern expense. Calhoun wrote a defense of the doctrine of nullification whereby states could refuse to enforce laws they deemed unconstitutional. South Carolina nullified the 1833 tariff and threatened to secede. Jackson considered it treason and obtained from Congress a bill to enable the federal government to collect the tariff, at gunpoint if necessary. Henry Clay engineered a compromise tariff that ended the threat of civil war.
CHANGING THE COURSE OF GOVERNMENT Jackson was able to enact much of his agenda, but the opposition he faced revealed the limits of presidential power.
Jackson embraced the policy of Indian cession of their lands and removal west of the Mississippi River. The five Civilized Tribes of the South were most affected. Even though the Cherokee had adopted white ways and accepted white culture, Jackson pressed for removal. He defied the Supreme Court when it ruled in favor of the Cherokee Indians in their efforts to prevent Georgia from pushing them out along the brutal “Trail of Tears.” The Black Hawk “war” was the final chapter in the removal of the Fox and Sawk Indians from the Old Northwest. Northerners and women strongly opposed removal.
Jackson’s veto of the Maysville Road Bill of 1830 was a defeat for western rival Henry Clay, but an unpleasant surprise for Jackson’s western supporters. Jackson opposed federal funding for transportation, arguing that this was a state responsibility. Private developers and the states underwrote extensive internal improvements, but the system was wasteful.
Around 1820, two Supreme Court decisions handed down by Chief Justice John Marshall reduced state power while aiding private enterprise and strengthening the federal role. Meanwhile, new state laws facilitated commercial growth.
Chartered in 1816, the Second Bank of the United States was a quasi-private institution. It had acted as a currency stabilizer. Western farmers and speculators (like Jackson) feared its power. When Clay and Webster pushed for early rechartering, Jackson saw it as a personal attack and vowed to kill the Bank. Jackson’s veto message denounced the Bank as the institution of a privileged elite. Financial leaders accused Jackson of reckless demagoguery, and his veto fanned sectional flames.
In the election of 1832 Jackson soundly defeated Henry Clay whom Democrats portrayed as the defender of the Bank and privilege. After his victory, Jackson withdrew federal deposits and placed them in “pet” banks. Critics denounced the move. But Jackson claimed that he alone was the direct representative of the people and could act regardless of Congressional opinion. This controversy was instrumental in the formation of the modern two-party system.
In response to the removal of federal funds, the Bank called in commercial loans, causing a recession. Jackson’s opponents founded an opposition party—the Whigs. The new party lost the 1936 election to Martin Van Buren. The death of the Bank led to a period of feverish speculation, followed by the Panic of 1837. The depression that resulted led to great hardship and gave the newly formed Whig Party its opportunity.
The Panic of 1837 was caused by both the expiration of the Bank, and foreign investors. The federal government did nothing to help victims of the ensuing recession, nor did the federal government attempt to intervene to try to jump-start the economy, because crashes were thought to be a necessary part of the business cycle. Martin Van Buren was nicknamed “Van Ruin” because of the poor state of the economy under his presidency.
THE SECOND AMERICAN PARTY SYSTEM The basic pattern of American politics – two major parties, each appealing to at least some members of all classes and residents of all regions – emerged out of the Jeffersonian political struggles.
By the 1830s, the second American party system was based on mass national appeal. The differences between Whigs and Democrats reflected emerging class and cultural differences. Whigs drew strength from those groups favoring government intervention in economic and social affairs and who had benefited from commercial agriculture and industrialization. Democrats drew strength from small farmers and urban workers who opposed rapid social and economic change. But both parties were coalitions, representing diverse interests.
In the election of 1840 Whigs portrayed their candidate, William Henry Harrison, as a humble man. Whigs won a sweeping electoral victory in a campaign with 80 percent voter turnout.
But the Whig triumph was short-lived. Harrison died a month after his inauguration and Vice President John Tyler assumed office. A former Democrat, Tyler had broken with Jackson for personal reasons. Tyler vetoed a series of bills that would have institutionalized the Whig-supported American System.
AMERICAN ARTS AND LETTERS National themes emerged in literature and arts, contributing to the formation of a national identity.
Steam-powered presses and the telegraph helped facilitate a communications revolution. “Penny papers” were important elements of urban culture. Religious literature was increasingly supplemented by magazines and novels. Timely information could be dispersed over great distances by telegraph, expanding the sense of national community.
Northeastern coastal cities created cultural institutions. A distinctly American literature was being created by writers such as Washington Irving, James Fenimore Cooper, and Ralph Waldo Emerson.
Artists such as Albert Bierstedt and George Caleb Bingham drew upon dramatic themes from the American landscape and lifestyles. Architects rarely worried about creating a legacy for the future. While neoclassical remained the style for public buildings, balloon frame construction enabled Americans to build homes at a rapid clip.
CONCLUSION At first glance it would seem that the new national feeling had swept aside localism. But sectional forces threatened political unity.
Discussion Questions
1. What does it mean to say that America in the early 1800s was becoming a democratic society? Democratic in what sense, and for whom?
2. Jackson is spoken of as being the first “modern” president. What does this mean? In what way did he transform the office of president?
3. The issue of government support for internal improvements was among the most divisive of the era. Why was this so? Who benefited from the transportation revolution? Who lost ground?
4. What were the key differences between Whigs and Democrats? What did each party stand for? Who were their supporters? What is the link between the party’s programs and party supporters?
5. Which geographic areas gave Jackson his greatest support? Why did he get support in those places?
6. In what ways did American arts and letters reflect the democratic spirit of the age?
Review: Key Words and Terms
Election of 1824
Election of 1828
Sectionalism
Nullification Crisis
Indian Removal Act
Black Hawk
Trail of Tears
Bank War
Specie Circular
Chapter 11 Review Questions
1. How did suffrage expand between 1800and 1840?
2. What steps did Andrew Jackson take to strengthen the executive branch of the federal government?
3. What led to the transportation revolution?
4. Who were Andrew Jackson’s most important opponents and what did they support?
5. What were the main issues of the campaign of 1840?
6. What role did newspapers and pamphlets play in American popular culture in the first half of the nineteenth century?
1. What does it mean to say that America in the early 1800s was becoming a democratic society? Democratic in what sense, and for whom?
2. Jackson is spoken of as being the first “modern” president. What does this mean? In what way did he transform the office of president?
3. The issue of government support for internal improvements was among the most divisive of the era. Why was this so? Who benefited from the transportation revolution? Who lost ground?
4. What were the key differences between Whigs and Democrats? What did each party stand for? Who were their supporters? What is the link between the party’s programs and party supporters?
5. Which geographic areas gave Jackson his greatest support? Why did he get support in those places?
6. In what ways did American arts and letters reflect the democratic spirit of the age?
Review: Key Words and Terms
Election of 1824
Election of 1828
Sectionalism
Nullification Crisis
Indian Removal Act
Black Hawk
Trail of Tears
Bank War
Specie Circular
Chapter 11 Review Questions
1. How did suffrage expand between 1800and 1840?
2. What steps did Andrew Jackson take to strengthen the executive branch of the federal government?
3. What led to the transportation revolution?
4. Who were Andrew Jackson’s most important opponents and what did they support?
5. What were the main issues of the campaign of 1840?
6. What role did newspapers and pamphlets play in American popular culture in the first half of the nineteenth century?