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Wall Street History
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03/29/2002
Andrew Jackson: Part Four - Biddle vs. Old Hickory
After a few detours on the path to the great dispute between
President Andrew Jackson and the Bank of the United States (if
you’re just picking up the story now, you may want to click on
the archives below), we have finally arrived at our destination.
The battle was actually between Jackson and Nicholas Biddle.
At the age of 37, Biddle had been named president of the Bank
of the United States (really the “Second,” but hereinafter, B.U.S.
or Bank) in 1823. Biddle was already a successful financier and
author, having achieved fame in the latter by writing a definitive
history on the Lewis and Clark expedition. Graduating from the
University of Pennsylvania at the precocious age of 13 (with
further schooling at Princeton), Biddle was also a politician and
diplomat before taking the reins at the B.U.S.
By all acounts, Biddle was a success at the top of the Bank.
Historian Paul Johnson writes, “Biddle was a first-class central
banker, as good at his job as Marshall was at being chief justice
(America needed a) highly competitive capitalistic system
with easy access to the largest possible sources of credit, that
access to be maintained by strict fiscal and financial probity.”
Biddle was, in effect, the first modern central banker and early
on, as Jackson was first running for office in the 1820s, Biddle
attempted to woo him. But as we’ve learned in prior installments
of this tale, Jackson believed that “the world is governed too
much,” while he was deeply suspicious of banks, especially of
the “central” variety. He also detested intellectuals, of which
Biddle was one, and he couldn’t care less about literature.
Jackson was “blissfully ignorant” of banking in general, telling
Biddle during his first year in the presidency (1829), “I think it
right to be perfectly frank with you. I do not dislike your Bank
any more than all banks. But ever since I read the history of the
South Sea Bubble I have been afraid of banks.” [Tindall & Shi].
Of course the irony of this comment was the fact that through
prudent management, Biddle was clearly attempting to avoid
such fiascoes.
By the time 1832 rolled around, Jackson, wary that banks often
intervened in local and national elections, saw that Biddle was
attempting to maneuver support for a rechartering of the B.U.S.
The charter wasn’t up until 1836, but Biddle felt that he couldn’t
afford to wait until then and suffer through the uncertainty.
Enter Jackson’s opponent in the presidential race, Henry Clay, as
well as the B.U.S.’s chief counsel, Senator Daniel Webster, who
both saw an opportunity to make the Bank an issue. Congress
approved the rechartering bill, thereby proving Jackson’s point
that banks often intervened in the political sphere.
Jackson told Martin Van Buren at the time, “The bank is trying
to kill me, but I will kill it!” On July 10, Jackson sent his veto
message to Congress.
“It is to be regretted that the rich and powerful too often bend the
acts of government to their selfish purposes Distinctions in
society will always exist under every just government but when
the laws undertake to add to these natural and just advantages
artificial distinctions to make the rich richer and the potent
more powerful, the humble members of society – the farmers,
mechanics, and laborers – who have neither the time nor the
means of securing like favors to themselves, have a right to
complain of the injustice of their Government.” [Beschloss]
Government should confine itself “to equal protection, and, as
Heaven does its rains, shower its favors alike on the high and the
low, the rich and the poor.” [Graff]
The Senate couldn’t muster a two-thirds majority to override the
veto and after Jackson’s defeat of Clay in the election, the B.U.S.
slide to oblivion was on, with tragic consequences for many
Americans, for in the words of Charles Morris, “Jackson’s fiscal
management was incompetent to the point of malignance.”
Others would say Biddle’s response wasn’t much better.
On October 1, 1833, Jackson decreed that no more government
money could be deposited into the B.U.S. Instead, Jackson
thought the states should have more control, so he made it easy
for all kinds of individuals to charter their own institutions, many
of which were classic fly-by-night operations. The banks then
would often issue their own notes and a bit of trivia is the fact
that the term “wildcat” originated long before it was used in the
oil industry. Specifically, a Michigan institution featured a
picture of a panther, or wild cat, on its worthless notes. [Tindall
& Shi]
The prevalence of new state banks led to another boom in land
speculation, while the states plunged into debt to finance roads
and canals. Ironically, this was the sort of South Sea Bubble that
Jackson had sought to avoid.
By removing government deposits and placing them in state
banks, Jackson was weakening Biddle’s political power but
obviously destroying any semblance of control the B.U.S. had on
the nation’s monetary policy. Inflation began to skyrocket as the
loosening of credit led to a huge increase in paper money.
Then, to compound matters, the Federal Government decided to
take its budget surplus (acquired through the booming public
land sales) and redistribute it to the states. About $28 million (a
large sum for those days) was made available with some states
then using the funds for public works or education, but others
speculating along with all the rest.
By July 1836, land speculation was so enormous that it added to
our lexicon the phrase “doing a land-office business.” The
President was then forced to issue a “Specie Circular,” whereby
the government would now only accept hard cash, gold or silver,
for public land payments.
In the meantime, Nicholas Biddle, bitter over his defeat on
rechartering, had been fighting back by foolishly helping to
create a panic with ultra restrictive credit policies. [Imagine
today’s Federal Reserve during a crisis saying, “Screw you all,
we’re going to keep tightening.”]
Suddenly, the Panic of 1837 was upon us. Banks went under by
the hundreds as farmers, businessmen, homeowners and
speculators found it impossible to pay off their debts due to both
the policies of the administration and the B.U.S. Soon,
depression set in, while in his Farewell Address that year,
Andrew Jackson once again warned of the insidious “money
power.” This self-made man, proof to all Americans that one
could be born in a log cabin and eventually become president,
was also at times pitifully out of touch on economic matters.
Through the crisis he left his successor (Martin Van Buren), the
farmer, mechanic, and frontiersman suffered. Wall Street
attempted to pick up the pieces, as the Bank of the United States
shuttered its doors.
[Note: If you read the above and thought of today’s prospective
housing bubble, you’re not alone.]
Sources:
“America: A Narrative History,” Tindall and Shi
“A History of the American People,” Paul Johnson
“American Heritage: The Presidents,” Michael Beschloss
“The Presidents,” Henry Graff, editor; Richard Latner
“The Growth of the American Republic,” Morison, Commager,
Leuchtenburg
“Wall Street: A History,” Charles R. Geisst
“Money, Greed, and Risk,” Charles R. Morris
Next week: something new and different.
Brian Trumbore
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