Andrew jackson, banks, and the Panic of Table of Contents



The Second Bank of the United States

Nicholas Biddle's Management

Rechartering the Bank

Andrew Jackson's Veto

Removal of Deposits by Roger B. Taney

The Demise of the Bank

Specie and the Specie Circular

Martin Van Buren and the Panic of 1837

The 1830s were a tumultuous decade for America. The attempt by the Second Bank of the United States for an early recharter was passed by Congress in July 1832, but the bill was vetoed shortly thereafter by President Andrew Jackson. The hopes of the bank's supporters to turn the veto in a winning campaign issue in that fall's presidential campaign failed dismally. In 1833, Jackson retaliated against the bank by removing federal government deposits and placing them in "pet" state banks. As federal revenue from land sales soared, Jackson saw the opportunity to fulfill his dream of paying off the national debt - which he did in early 1835. But as the economy overheated and so did state dreams of infrastructure projects. Congress passed a law in 1836 that required the federal surplus to be distributed to the states in four payments. Shortly thereafter, the Jackson Administration declared in its "Specie Circular" that payments for federal land purchases be made in specie. When combined with loose state banking practices and a credit contraction, a major economic crisis was brewing when Martin Van Buren took office as president in March 1837. Two months later, New York City banks suspended specie payments. A major economic recession was soon underway. Van Buren - under pressure from his mentor Jackson - decided not to suspend the Specie Circular. Instead, he proposed a set of economic proposals that September - the most of important of which - an independent Sub-Treasury - Congress refused to pass. As a result, the recession double dipped in 1839 and the national economy did not recover until 1843. The Second Bank of the United States The first Bank of the United States died when its twenty-year charter expired in 1811. Recharter of BUS was strongly backed by Treasury Secretary Albert Gallatin, weakly backed by President James Madison, opposed by Vice President George Clinton, opposed by the House of Representatives, and strongly opposed by former President Thomas Jefferson. House Speaker Henry Clay's later support of a national bank in the 1820s and 1830s linked him to the American originator of the bank idea, Alexander Hamilton, but Clay had begun his political life as an opponent of the national bank. Only later, Clay and other Jeffersonians came to recognize the important functions played by the BUS. Historian Sean Wilentz wrote: "Republican reconciliation with Hamilton's bank idea had taken place by fits and starts, and was never monolithic. In 1811,...the Madison administration, goaded by Secretary of the Treasury Gallatin, supported it....In Congress, a coalition of Republican southerners and westerners, seeing the bank as an instrument for economic development in their respective regions led the recharter effort." 1 However, the effort fell short in the House. Historian Gordon S. Wood noted that "the more important enemies of the BUS were the state banks. By regularly redeeming the outstanding notes of the state banks, the BUS had checked their ability to issue notes too far in excess of what they could cover with specie, that is, their reserves, and this had become a deep source of anger....When the twenty-year charter of Hamilton's BUS was about to expire in 1811, it was not surprising that these state banks were determined that it would not be renewed." 2" Henry Clay, Wilentz wrote, thought "the national bank unfairly constrained the operations of state banks." 3 The death of the first Bank of the United States was almost prevented. "On January 24th, 1811, the House, by a single vote, rejected a preliminary motion on the bank charter, and the fight moved to the Senate," noted Historian John Steele Gordon. "There, on February 20th, the Senate tied 17-17 on another preliminary matter, and Vice President George Clinton, in perhaps the only significant independent act by a vice president in American history, voted against the bank. The Bank of the United States was dead." It was an economically and politically shortsighted act. Gordon noted that "many of the men who voted to kill the bank were the very same men who advocated war - the most expensive of all public policies - with one of the strongest military powers on earth. Given the fact that the bank was the government's principal mechanism for collecting internal revenue and its only one for raising loans, the defeat of the charter was perhaps the most feckless act in the history of the United States Congress, although, to be sure, that is a title for which there has been no little competition over the years." 4 The War of 1812 would soon demonstrate the clear need for a government bank to help fund growing government expenses not covered by the nation's limited tariff revenue. Such revenue was further limited by a transatlantic war. The conflict regarding national economic policy, begun in the 1790s between followers of Alexander Hamilton and Thomas Jefferson, continued. Leading up to the 1812 war, noted financial historian Susan Hoffman, one "group of agrarians, `unreformed' or `unreconstructed' Jeffersonians, opposed recharter of the Bank of the United States because they continued to oppose all banking on philosophical grounds. They resurrected the old arguments against the bank's constitutionality. Joining them in opposition to recharter was the third contingent of congressional Republicans, the free enterprisers. Here was the voice of the `interests' of the day. Led by Henry Clay, they opposed the Bank of the United States because its regulatory hand got in the way of state banks and because its dominance of U.S. government deposits kept those deposits out of state bank vaults." 5 The War of 1812 upended the long political split in the country regarding the bank. Now in power for 16 years, many Jeffersonians began to see the necessity of the bank that Federalists had long championed. Preparations were made for a successor institution. With support of Speaker Clay, President Madison, future President James Monroe, and future Vice President John Calhoun, the Second Bank of the United States was chartered in 1816 for 20 years. By 1816, noted financial historian Susan Hoffman, "Reformed Jeffersonians...had concluded that banking was with us and must be regulated to ensure its consistency with the Jeffersonian concept of the public interest, which emphasized protection of the freedom and equality of individuals. The key factional shift that allowed the second national bank's charter to pass was on the part of the state banking supporters. Whether they had opposed the central bank because they did not like any regulator or because they thought state regulation would be sufficient, this group concluded, in light of the economic chaos in the absence of the first national bank, that federal regulation was consistent with state banking."6" Historian Sean Wilentz observed that the new bank was designed to curb inflation and speculative frenzies: "Acting as a financial balance-wheel, the national bank would, in principle, keep currency values and capital markets stable, and prevent national economic expansion from turning into an orgy of overspeculation and runaway inflation." 7 The Second Bank of the United States got off to a rocky start. Susan Hoffmann wrote that it "opened for business in January 1817 under William Jones (1816-19) in the midst of the economic boom that followed the end of the War of 1812." 8 Indeed, the revived national bank was not fortunate in its choice of directors who first inflated the currency and then contracted it. Historian Harlow Giles Unger wrote: "Inflated by speculation in western lands, an economic `bubble' suddenly popped, with hundreds of banks shutting down, and thousands of depositors and investors wiped. The land rush had seen the number of banks grow to more than 1,000, with each issuing its own colorful bank notes - normally in two- and five-dollar denominations, backed by no one knew what." 9 This period has been dubbed the "Era of Good Feelings," but it was not the era of good economic leadership or economic prosperity. Economic historian Charles Sellers wrote that the "brutal deflation saved the national Bank by sacrificing not only its debtors but the state banks and their hordes of debtors as well, which is to say, most of the market economy. Suddenly in the spring of 1819, as the Bank's pressure was intensified by a similar financial crisis in Britain, world commodity prices collapsed." Sellers wrote that "the collapse of agricultural prices made it impossible for state banks to collect from borrowers or meet obligations to the national Bank. When most state banks suspended the pretense of specie redemption, a flood of business failures and personal liquidations plunged Americans into their first experience of general and devastating economic prostration." 10 Future President Andrew Jackson himself had reason to complain about the impact of the Panic of 1819. During this period, politics were inseparable from bank issues. Bankers were popular in times of prosperity and easy scapegoats in time of recession. Andrew Jackson's own aversion to debt and banks was based on bitter personal experience. Economic historian John Steele Gordon wrote: "Like most speculators in land, Jackson sometimes got involved in complicated deals involving credit. In 1795, wanting to establish a trading post, he sold sixty-eight thousand acres to a man named David Allison, taking the latter's promissory notes in payment. He used the notes as collateral to buy supplies for his trading post, but when Allison went bankrupt, Jackson was left holding the bag." Gordon noted: "It would take him a decade and a half to finally settle everything in this affair, and it left him with a lifelong horror of debt and debt's various instrumentalities." 11 Robert E. Wright and David Cowen wrote: "According to some sources, Jackson made a mint in land speculation, buying up large tracts on the cheap, holding them until prices increased, then selling them. Unfortunately, however, Jackson often sold on credit rather than for cash and ended up losing a lot of his paper profits when buyers, like Philadelphian David Allison, went bust and defaulted on their notes and mortgages. Those defaults, in turn, strained Jackson's finances." 12 House Speaker Henry Clay also was hurt by the financial contraction caused by the bank. He left Congress, attended to his personal financial affairs and joined the BUSII as a lawyer for its operations in Ohio and Kentucky. Historian Merrill D. Peterson wrote that Clay "hoped, as he told [John Quincy] Adams upon his departure from Washington, to rebuild his once flourishing law practice with the aid of this agency, itself worth $5,000 a year, and after several years reenter Congress financially independent." 13 Although bad for Clay and the nation's economy, the Panic of 1819 had been good for the BUS. Financial historian Susan Hoffman wrote that because of the bank's restrictive lending policies, "credit retraction resulted in the second Bank of the United States owning large portions of cities and vast tracts of good farmland in the developing portions of the country." Despite the new bank's problems, noted Hoffman, "Both Congress and the administration had a reasonable grasp on the national bank's failure to meet their expectations; overwhelmingly, they advocated that the institution be reformed, not scuttled. Reform was thus the dominant theme of a second phase of operations under bank president Langdon Cheves (1819-23)." 14 " Other banks did not fare so well. There were good reasons for the bad image of banks. Historian Edward Pessen wrote: "Most of the nation's money was issued by banks either operated by state governments or, more typically, whose state governments had granted charters to the corporations which ran them. Many of the newer banks were speculative ventures pure and simple, whose managers were operators in the worst sense of the world." 15 Nicholas Biddle's Management In 1823, the BUSII entered its third stage under President Nicholas Biddle, who as a Pennsylvania state legislator had been a supporter of the first Bank of the United States. Financial historian Davis Rich Dewey wrote that Biddle was "elected to represent ` a young and progressive policy' as against an `old and conservative policy.' His aim was to increase the circulation and yet avoid the dangers which nearly wrecked the bank between 1817 and 1819. This he accomplished through the freer use of domestic bills of exchange and the introduction of branch drafts. Under the charter provision only the president and the cashier of the parent bank could affix signatures to bills of branches. This restriction practically barred branch issues, as the officers could not sign more than 1500 notes a day, and it was calculated that on this basis four years would be required to furnish the volume needed. The bank, therefore, repeatedly endeavored to secure congressional authority to permit the officers of the branch banks to sign notes, but the efforts failed on the ground that a variety of signatures meant a variety of notes, causing an increase in the evils of irresponsible and inflated circulation which the establishment of the bank was in part intended to remedy." 16 Biddle seemed born for his new role. Historians Robert E. Wright and David J. Cowen wrote: "Stately, intelligent, polished, almost aristocratic in bearing, he was as much an intellectual as a banker. He was such a serious and diligent lad that his fellow classmates at Princeton dubbed him `Grammaticus.'" 17 Biddle brought new stability to the bank and to the country's economy. Biddle's assumption of the bank presidency when he was just 37 marked the beginning of the institution's most successful period, but it nevertheless ran counter to the political and economic philosophy of Andrew Jackson. Financial historian Susan Hoffman observed that Biddle's "management was both prudent, in restoring and protecting the stability of the institution itself, and creative, in designing straightforward mechanisms for providing currency and credit in accord with the needs of the changing, growing economy." 18 Historian Merrill D. Peterson noted: "Under Nicholas Biddle's brilliant leadership it had met its fiscal obligations to the government, provided the country with sound and uniform currency, facilitated transactions in domestic and foreign exchange, and regulated the supply of credit so as to stimulate economic growth without inflationary excess." 19 Biddle was financially savvy but ultimately politically inept. As Biddle was growing in financial stature, his future nemesis, General Andrew Jackson, was growing in political stature. Biddle took over just before the 1824 presidential election in which John Quincy Adams replaced James Monroe as president. It was a controversial election in which Jackson thought he had been robbed of a rightful victory in the House of Representatives by a coalition of supporters of Adams and Henry Clay. Jackson was a hard-money man who strongly distrusted banks, paper currency, and government deficits. Jackson styled himself the outsider. Biddle and his friends were insiders. John Steele Gordon wrote: "By the time Biddle became president, most of the animosity against the bank had disappeared, thanks to economic recovery and sound policy on the part of the bank. It was not an issue in the presidential campaign of 1824 - when Jackson won a plurality of the popular vote, but lost in the House of Representatives to John Quincy Adams - or in 1828, when Jackson exacted revenge by winning a smashing victory over the unpopular Adams. Biddle voted for Jackson in both elections." 20 Jackson represented a new wave of populist politics. Biddle stood for the power of the elite and financial stability. Biddle was the enemy. Historian Jenny B. Wahl wrote: "Leery of the Bank's size, wealth, and power, Jackson also mistrusted any form of money other than gold or silver." 21 For nearly a decade, Biddle provided good bank management. Historian Walter A. McDougall observed that as a result of Biddle's "prudential care, Americans never knew, before or since, a sounder currency than in the very years when Jackson claimed the BUS `failed.' The charge was all the more scurrilous, given the indispensable help Biddle provided for Jackson's program to retire the national debt."22 Economic historian Bray Hammond wrote that Biddle was "a devoted, conscientious, and exceptionally able manager of the federal Bank up to the time the President and his advisers decided to do away with her and him too." 23 Andrew Burstein noted: "The Bank of the United States was perfectly well managed. It regulated the availability of credit through its practical control over the loan activities of state banks. But to Jackson, the national bank was a morally suspect institution, a symbol of secret manipulation." 24 Taking a more critical position, Arthur Schlesinger, Jr., argued: "Biddle not only suppressed all internal dissent but insisted flatly that the Bank was not accountable to the government or the people." Schlesinger wrote: "In Biddle's eyes the bank was...an independent corporation, on a level with the state, and not responsible to it except as the narrowest interpretation of the charter compelled. Biddle tried to strengthen this position by flourishing a theory that the bank was beyond political good or evil, but Alexander Hamilton had written with far more candor that `such a bank is not a mere matter of private property, but a political machine of the greatest importance to the State.' The Second Bank of the United States was, in fact, as Hamilton had intended such a bank should be, the keystone in the alliance between the government and the business community." 25 That was anathema to Jackson. The BUS represented to Jackson the power of an unaccountable elite. Nevertheless, it did more for the economy than Jackson recognized. Historian Walter A. McDougall wrote: "The BUS ran twenty-nine branches around the country, did $70 million of business per year, issued 20 percent of the banknotes in circulation, held one-third of all American deposits, and was the sole depository for the annual surpluses accumulated by the federal government. It did not, however, have a death grip on local economies. In order to maintain leverage over state banks the BUS had to hold more of their dubious bonds than they did its own trustworthy notes. Hence the BUS was a guaranteed conduit funneling capital and credit to the West and South rather than squeezing them." 26 Jackson came into presidency in 1829 determined to eliminate the national debt, the management of which was one of the purposes of the national bank. "Jackson had two purposes in ridding the country of debt," wrote John Steele Gordon. "The first, of course, was that he thought debt was bad in and of itself. He called it a `national curse' in his first run for the presidency in 1824. But he thought that the institutions and the people who benefited from it were a national curse as well. `My vow,' he pledged, `shall be to pay the national debt, to prevent a monied aristocracy from growing up around our administration that must bend to its views, and ultimately destroy the liberty of our country." 27" Debt was bad so Biddle must be bad too. Political scientist Stephen F. Knott wrote the "vision of Biddle as a corrupt manipulator permeated Jacksonian rhetoric; Jackson himself described one of Biddle's actions as a desperate attempt to preserve the Bank by purposely loaning out millions to avoid paying the national debt and to `gain power...and force the government...to grant it a new charter.'" Knott noted that Democrats "demonized Biddle as the new Hamilton," whose reputation had suffered during the Jefferson-Jackson ascendancy. 28 As Jackson would tell future President James Polk in 1833: "Every one that knows me does know that I have been always opposed to the U. States bank, nay all banks."29 Nevertheless, Jackson's inaugural address in 1829 did not address the bank issue. He had other more pressing objectives. Historian Woodrow Wilson wrote: General Jackson had come in "to simplify and purify the workings of the government, and to carry it back to the times of Mr. Jefferson,—to promote its economy and efficiency, and to maintain the rights of the people and of the States in its administration"; and from the outset, with something of the instinct of the communities in which he had been bred, he looked upon the Bank as an enemy of constitutional and democratic government. His attack upon it, begun in his first inaugural address, had been continued in every annual message he sent to Congress. He had begun by plainly intimating a doubt as to the legality of its institution, the Supreme Court to the contrary notwithstanding; and had asserted that it had failed to establish a stable currency. He next pronounced it an "un American monopoly." Finally he expressed serious misgivings as to the soundness of its management. At each mention of it his warmth sensibly increased; his hostility became more open and aggressive. The purpose apparently grew upon him to destroy it. He forced it to meet him, as challenger, and fight for its life in the open field of politics. Influences were at work upon him which were only by degrees disclosed to his opponents."30 Over time, Biddle returned Jackson's disdain. Historian H. W. Brands wrote: "Biddle's patronizing attitude toward Jackson reflected the conventional wisdom of the East toward the warrior from the West, but it also followed from a rare personal meeting of the two men. Biddle had sent Jackson a plan to pay down the federal debt; in their meeting Jackson told Biddle he appreciated the advice. Biddle said it was the least he could do. Jackson explained his broader views on banking and the Bank of the United States. `I think it right to be perfectly frank with you,' he said (in Biddle's rendering of the session). `I do not think that the power of Congress extends to charter a bank out of the ten mile square' - the federal district. The president added, `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. Biddle found this explanation quaintly reassuring, for it suggested that Jackson's stance on the bank was his own idosyncrasy and not the policy of the administration." 31 "Jackson [had] announced his intention to strike at the BUS in his first and second messages to Congress, although he muted himself at the continued insistence of those advisers, above all Van Buren, who were worried about alienating too many important supporters too soon," noted historian Sean Wilentz.. "In the first message, Jackson made clear that he strongly doubted whether the bank's existing charter was constitutional; he also believed the bank had failed to establish a sound currency. Jackson expanded his criticisms a year later, and proposed a possible replacement for the BUS: a wholly public institution with no private directors or stockholders, shorn of the power to extend loans or purchase property, but capable of retraining state banks from irresponsibly issuing paper." 32 By his second term in office, with the help of high import duties, Jackson succeeded in his fondest goal - eliminating the National debt left over from the Revolutionary War and the War of 1812 before 1835. In addition to his natural aversion to all forms of debt, noted economic historian John Steele Gordon, Jackson "had another motive as well. Banks used federal bonds as backing for their issuance of banknotes, and Jackson, wanting to get rid of paper money, planned to do so by getting rid of the backing." 33 In his annual message to congress in December 1834, Jackson would write: "Free from public debt, at peace with all the world, and with no complicated interests to consult in our intercourse with foreign powers, the present may be hailed as the epoch in our history the most favorable for the settlement of those principles in our domestic policy which shall be best calculated to give stability to our Republic and secure the blessings of freedom to our citizens." 34 Jackson's economic populism was deliberately divisive. Historian John Steele Gordon wrote: "Jackson had no objection to self-made men like himself who sought only their own economic advancement and contributed thereby to the increased wealth of the country. By `monied aristocracy,' he meant the older fortunes of the Eastern Seaboard and those who dealt in `paper' rather than `real' wealth such as land and manufacturing facilities. For Jackson and his followers, the symbol of this `monied aristocracy' was the Second Bank of the United States and its president, the aristocratic and sophisticated Nicholas Biddle." 35 Jackson biographer David S. Reynolds wrote: "Jackson viewed the BUS as a fountain head of the evils that he thought came from aristocratic privilege and centralized government." 36 Furthermore, he believed - as Jefferson had - that the bank was unconstitutional. Philosophically and politically, Jackson opposed the bank and all it represented. Terminating the bank was fundamental to Jackson's political philosophy. "Like Benton and other anti-bankers, the president feared the emergence of a monopoly of money," observed Jackson biographer H.W. Brands. Jackson believed "a monopoly of money was inherently dangerous. Of the bank's twenty-five directors, only five were chosen by the government, the rest by the stockholders of the bank. Thus the public interest was always outweighed by the interests of the bank's private owners, who must have been saints not to be tempted by the power they held over the nation's economy. `It is easy to conceive that great evils to our country and its institutions might flow from such a concentration of power in the hands of a few men irresponsible to the people,' Jackson said. Nor was the economy the sum of what was at risk from the bank's excessive power. `Is there no danger to our liberty and independence?...Will there not be cause to tremble for the purity of our elections in peace and for the independence of our country in war?'" John Steele Gordon wrote: "To Andrew Jackson, real money was specie - gold and silver coins. Paper money and what was coming in his day to be called commercial paper - bills of exchange, promissory notes, bank checks, and such - were to Jackson, just as they had been to John Adams a generation earlier, a form of fraud." 37 It is was sometimes difficult to separate differences of personality from differences of policy but attitudes toward the role of gold certainly were a major point of difference in the economy. Historian William Graham Sumner noted that in the mid-1830s the anti-Jacksonians "took up cudgels in behalf of banks and bank paper, as if there would be no currency if bank paper were withdrawn, and as if there would be no credit if there were no banks of issue. In their arguments against the bullionist party, they talked as if they believed that, if the public Treasury did its own business, and did it in gold, it would get possession of all the gold in the country, and that this would give it control of all the credit in the country, because the paper issue was based on gold." 38 Rechartering the Bank The Second Bank of the United States might have survived had it not decided directly to test Jackson's power. Admittedly, the BUS was on Jackson's hit list, but BUSII supporters moved it into his immediate line of sight. Economic historian John Steele Gordon wrote that "hardly had Jackson entered the White House than his visceral hatred of banks, especially large, powerful ones, manifested itself in his first message to Congress as president. He raised the question of rechartering the Second Bank of the United States a full seven years before its charter was due to expire. By the beginning 1832, when was preparing to run for reelection, Jackson ran for reelection, it was clear that he intended to kill the bank."39 Woodrow Wilson wrote: Mr. [Samuel D.] Ingham retired from the Treasury upon the reconstruction of the cabinet which followed the President's breach with Mr. Calhoun, and Mr. Louis McLane, of Delaware, took his place (August 8, 1831), a man of better balance and more liberal spirit, trained in the older school of politics. In December, 1831, his report to Congress ran strongly and unmistakably in the Bank's favor, and it began to look as if the temper of the Administration had already cooled and altered in the needless quarrel, which was of its own making. But the friends of the Bank were not wise enough to let the matter drop. Its charter was safe at least until 1836, and General Jackson, they might have hoped, would learn the Bank's value by experience, should he remain President until then. But Mr. Clay advised that application be made at once for a renewal of the charter, while the houses certainly held a majority favorable to it; and the advice was imprudently taken. 40 Historian Merrill D. Peterson wrote that Clay had doubted that Jackson would risk a veto before the election. "Pro-Bank Jacksonians with whom Clay discussed legislative strategy demurred, saying that a recharter bill in 1832 would be considered an electioneering attack on the president, inevitably provoking a veto. Biddle sent his personal emissary to the capital. He reported that Webster, the Bank's counsel, was decidedly for action. Jackson would bluster but finally yield to the will of Congress....Biddle was motivated solely by what he deemed best for the institution over which he ruled like a petty prince. Neither he nor Clay, nor Webster, nor anyone else thought that the outcome of the recharter fight would have much bearing on the presidential election. It was only a question of whether Jackson would more likely approve of a recharter before or after his reelection." Jackson's goals ran counter to economic and political reality. Peterson wrote: "Without revealing the depth of his hostility to the Bank, he gradually made known his determination either to convert the institution into a branch of the treasury or to overthrow it. But the Bank was popular with Congress. Under Nicholas Biddle's brilliant leadership it had met its fiscal obligations to the government, provided the country with a sound and uniform currency, facilitated transactions in domestic and foreign exchange, and regulated the supply of credit so as to stimulate economic growth without inflationary excess...Neither Biddle nor any of the Bank's friends wished to force the issue of recharter before the presidential election. Clay...pointedly advised him to delay the recharter petition until after the election. Clay believed a plan had been hatched by Van Buren, Ritchie, and their circle to make destruction of the Bank the big issue in the election, and that this explained Jackson's demand for action." 41 Brands wrote: "Clay wanted, as he judged the bank a good issue on which to run against Jackson in 1832. It was just the opposite of what Biddle wanted, as the bank president wished to keep his beloved institution out of the mud of a partisan campaign." 42 In September 1830, Clay wrote Biddle a prescient strategy memo - which Clay would overrule as the presidential election of 1832 approached: It may be assumed, as indisputable, that the renewal of the charter can never take place, as the Constitution now stands, against the opinion and wishes of the President of the U.S. for the time being. A bill, which should be rejected by him for that purpose, could never be subsequently passed by the constitutional majority. There would always be found a sufficient number to defeat such a bill, after its return with the President objection, among those who are opposed to the Bank on constitutional grounds, those who, without being influenced by constitutional considerations, might be opposed to it upon the score of expediency, and those who would be operated upon by the influence of the Executive. I think it may even be assumed that a bill to renew the Charter cannot be carried through Congress, at any time, with a neutral executive. To ensure its passage, the Presidents opinions and those of at least a majority of his Cabinet must be known to be in favor of the renewal. President Jackson, if I understand the paragraph of his message at the opening of the last Session of Congress, relating to the Bank, is opposed to it upon Constitutional objections. Other sources of information corroborate that fact. If he should act upon that opinion, and reject a bill, presented for his approbation, it would be impossible to get it through Congress at the next Session against the Veto. That a strong party, headed by Mr. V. Buren, some Virginia politicians and the Richmond Enquirer, intend, if practicable to make the Bank question the basis of the next Presidential election, I have, I believe, heretofore informed you. I now entertain no doubt of that purpose. I have seen many evidences of it. The Editors of certain papers have received their orders to that effect, and embrace every occasion to act in conformity with them. This fact cannot have escaped your observation. If you apply at the next Session of Congress, you will play into the hands of that party. They will most probably, in the event of such application, postpone the question, until an other Congress is elected. They will urge the long time that the Charter has yet to run; that therefore there is no necessity to act at the next Session on the measure; and that public sentiment ought to be allowed to develope itself &c. These and other considerations will induce Congress, always disposed to procrastinate, to put off the question. In the mean time, the public press will be put in motion, every prejudice excited and appeals made to every passion. The question will incorporate Itself with all our elections, and especially with that as to which there is so great a desire that it should be incorporated. It will be difficult, when Congress comes finally to decide the question, to obtain a majority against the accumulation of topics of opposition. But suppose, at the next Session, on the contingency of your application for a renewal of the Charter, instead of postponing, Congress was to pass a bill for that object, and it should be presented to the President, what would he do with it? If, as I suppose, he would reject it, the question would be immediately, in consequence, referred to the people, and would inevitably mix itself with all our elections. It would probably become, after the next Session, and up to the time of the next Presidential election, the controlling question in American politics. The friends of the Bank would have to argue the question before the public against the official act of the President, and against the weight of his popularity. You would say what ought the Corporation to do? I stated to the above gentleman that, in my opinion, unless you had a satisfactory assurance that your application at the next Session would be successful, you had better not make it. If, contrary to my impressions, you could receive such an assurance from both departments of the Government, who would have to act on the case, that would present a different state of the question, and would justify the presentation of your petition. If not made at the next Session, when should it be made? I think the Session immediately after the next Presidential election would be the most proper time. Then every thing will be fresh; the succeeding P. election will be too remote to be shaping measure in reference to it; and there will be a disposition to afford the new administration the facilities in our fiscal affairs which the B. of the U.S. perhaps alone can render. But suppose Gen'l Jackson should be again elected? If that should be the case, he will have probably less disposition than he now has to avail himself of any prejudices against the Bank. He will then have also less influence; for it may be loosely asserted, at least as a general rule, that the President will have less popularity in his second than in his first term. And that I believe would emphatically be the fate of the present President. At all events, you will be in a better condition by abstaining from applying to renew the charter during his first term, than you would be in, if you were to make the application and it should be rejected. Upon the supposition of such a rejection, and that the question should be afterwards blended with the Presidential contest, and Gen'l Jackson should be elected, his re election would amount to something like a popular ratification of the previous rejection of the renewal of the charter of the Bank. Indeed, if there be an union of the Presidents negative of the Bank bill with the next P. election, and he should be reelected, would it not be regarded as decisive against any Bank of the U.S. hereafter? My opinion, upon the whole, then is, that it would be unwise to go to Congress without something like a positive assurance of success at the next Session; and that the Corporation, without displaying any solicitude in regard to the continuation of its charter, had better preserve, in the able and faithful administration of its affairs, which it has of late years manifested, and go to Congress at the first moments of calm which shall succeed the approaching Presidential storm. 43 Jackson had planned for political and economic eventualities - including an early attempt at recharter. Larry Schweikart and Michael Allen noted that in 1829, Jackson had commissioned Amos Kendall to devise an alternative to the Bank of the United States. They wrote: "According to his close associate James Hamilton, Jackson had in mind a national money: his proposed bank would `afford [a] uniform circulating medium' and he promised to support any bank that would `answer the purposes of a safe depository of the public treasure and furnish the means of its ready transmission.' He was even more specific, according to Hamilton, because the 1829 plan would establish a new `national bank chartered upon the principles of the checks and balances of our federal government, with a branch in each state, and capital apportioned agreeably to representation....A national bank, entirely national Bank, of deposit is all we ought to have.'" 44 James Hamilton, described by historian Sean Wilentz as "no friend to the BUS," was a strong supporter of Jackson as well as the son of the founder of the Bank of the United States. 45 "The young Hamilton, who later briefly served as Jackson's interim secretary of state,...helped Jackson to draft the bank-related portion of his 1829 State of the Union address," wrote Robert E. Wright and David J. Cowen. "As his father had done some four decades earlier, Hamilton pulled an all-nighter, but in this case to fire the first salvo in a Bank War, not to have the last word in a gentlemanly debate. The young Hamilton wrote that `both the constitutionality and the expediency of the law creating the bank are well questioned by a large portion of our fellow-citizens.'" The historians wrote: "Again in his second annual address to Congress, Jackson noted that `it becomes us to inquire whether it be not possible to secure the advantages afforded by the present bank through the agency of a Bank of the United States so modified in its principles and structures as to obviate Constitutional and other objections.'" 46 The anti-Jackson forces miscalculated politically although they began with a strong political hand. Economic historian Susan Hoffman noted: "By 1832, when Biddle asked Congress to renew the charter, there was...widespread support for the institution throughout the country: by state legislators, by state banks, and among the people generally. Jackson was thus not responding to popular demand to dismantle the bank; he had to work hard to cast it as a monster." While Jackson was economically misguided in his opposition to the BUS, Nicholas Biddle was economically wise but politically foolish in the way he pursued its recharter. "In a management move that would prove not as helpful to the bank as his other changes, Biddle distanced himself from the secretary of the Treasury. Although the bank's formal link to the secretary - specified initially by Hamilton and carried forward to the second national bank's charter - was confined to periodic financial reporting, in practice the secretary of the Treasury had been in consultation with the bank president regarding large and sometimes quite trifling matters of policy from Hamilton's day on. Indeed, it is difficult to imagine Hamilton remaining aloof from national bank matters; likewise, hands-on Republican administrators such as Gallatin and Dallas did not sit in their offices passively awaiting accounting reports from the bank. Jackson's Treasury secretaries did not possess their predecessors' financial and administrative expertise, but the early ones did try to protect the bank politically. Because he ignored their counsel, Biddle made unnecessary political blunders." 47 Political scientist Stephen F. Knott noted that Missouri Democratic leader Thomas Hart Benton viewed the BUSII controversy as the culmination of a forty-year struggle: "Benton placed the blame for this disaster squarely on [Alexander] Hamilton, arguing that it was `the natural fruit' of Hamilton's deviation from the intentions of his founding colleagues, in particular his modeling the BUS after the `corrupt' Bank of England." 48 When Biddle chose to act on rechartering, he was playing into Jackson's hand and exacerbating the president's usual fears about both banks and bankers. Margaret G. Myers wrote: "Biddle and his advisors were understandably disturbed by the attacks on the Bank and by other indications of hostility which began to appear in administration newspapers. They decided not to wait until 1836 when the charter would expire, but to apply for a renewal well in advance of that date. Daniel Webster and Henry Clay helped to prepare the petition for recharter which was presented to Congress in January 1832. The lengthy debate over the petition resulted only a resolution to investigate the Bank, and in March a Congressional committee was appointed." 49 Jackson was prone to see conspiracies all around him. BUSII was a particularly dangerous conspiracy from the presidency's perspective Jackson saw it as a political force that he did not control. Larry Schweikart and Michael Allen argued that Jackson's opposition was more political than philosophical: "What made Biddle dangerous...was not his capabilities as a bank president, but his political powers of patronage in a large institution with branches in many states - all with the power to lend. Only the Post Office and the military services, among all the federal agencies, could match Biddle's base of spoils. Biddle also indirectly controlled the votes of thousands through favorable loans, generous terms, and easy access to cash. Whether Biddle actually engaged in politics in such manner is irrelevant: his mere capability threatened a man like Jackson, who saw eastern cabals behind every closed door. Thus, the `bank war' was never about the BUS's abuse of its central banking powers or its supposed offenses against state banks (which overwhelmingly supported rechartering of the BUS in 1832). Rather, to Jackson, the bank constituted a political threat that must be dealt with." 50 The achievements of the Second Bank of the United States were irrelevant to Jackson. In early July, the recharter legislation passed Congress, 28-20 in the Senate and 167-85 in the House of Representatives. Andrew Jackson's Veto The ball was now in the president's court. Historian James C. Curtis wrote: "With the passage of the recharter bill, the president knew there would be no way to keep the bank issue out of the election. If he followed the counsels of moderation he would only confuse the campaign by inviting the voters to discuss an issue as yet unresolved. Jackson desperately wanted vindication; the election had to turn on his conduct, not the Bank's misbehavior. Only an absolute veto that left no room for further negotiation would clear the way for such a contest." 51 Jackson biographer H.W. Brands, however, argued: "Jackson hadn't intended to fight the 1832 election on the bank issue. In his annual message of December 1831 he had barely mentioned the subject. But when Clay, Webster, and Biddle insisted on making a contest over the bank, he couldn't resist such a tempting prospect. Better than any of them, Jackson understood the symbolism of the bank and what it meant for popular government in America. He received the renewal bill from Congress on July 4, which seemed fitting to those friends of capital who hoped the measure would secure their independence from ignorant democrats and provocatively ironic to those same democrats, who felt it fastened an aristocracy of finance upon the country." 52 After Congress acted, President Jackson waited a week to respond. For Jackson, the bank issue was personal as well as political, but his opponents provided him with the opportunity to make it constitutional and national. Historian Charles Sellers wrote: "National Republicans pressed Biddle to request recharter before the election, arguing that Jackson would either have to acquiesce or be defeated for destroying an invaluable institution. When a careful headcount confirmed a comfortable majority in Congress, Biddle submitted a memorial for recharter. Despite Benton/Bucktail charges of Bank abuses, this Democratic Congress passed a recharter bill by large margins. [U.S. Minister to England Martin] Van Buren hastening back from London, reached the White House at midnight on July 3, just after the bill's arrival, to find the President ill but resolute. `The bank, Mr. Van Buren, is trying to kill me,' he said, `but I will kill it." A week later his resounding veto message went to Congress." 53 Historian Harry L. Watson wrote that "the veto was a splendid popular success. Voters applauded the president's defense of public equality, even if they did not follow the subtle economic arguments in favor of central banking." 54 Nor was the president's veto decision based on opinions within his Cabinet. Only Attorney General Roger B. Taney shared Jackson's views on the veto. Taney correctly saw the recharter bill as a form of political blackmail: "Now, as I understand the application at the present time, it means if the Bank says to the President, your next election is at hand - if you charter us, well - if not, beware." 55 Taney fanned the flames of Jackson's constitutional instincts. Historian Sean Wilentz wrote: "A nearsighted lawyer with repellent features but a soft and persuasive manner, Taney had come to distrust large financiers during his years on the bench and as a state bank director. His anti-BUS animus was so strong that he was the only department head whom Jackson also admitted to his `kitchen cabinet' inner circle. There, Taney joined the Kentuckians [Amos] Kendall and [Francis] Blair, who were among the most ferocious antibank men in Washington and who urged Jackson to offer the bank no mercy." 56 Biddle's actions invited a counterattack from Jackson, who saw clearly Jeffersonian limits on congressional powers under the Constitution. Economic historian Charles Sellers wrote: "The full audacity of Old Hickory's [veto] strategy was revealed only at the end of the message, in a brief but sensational attack on the only bank for which he had any constitutional responsibility, however remote. Although the national Bank was chartered for seven more years, he urged Congress and country to begin considering alternatives. `Both the constitutionality and the expediency of the law creating this bank are well questioned by a large portion of our fellow-citizens,' he asserted, `and it must be admitted by all that it has failed in the great end of establishing a uniform and sound currency.'" 57 Jackson biographer H.W. Brands noted: "Vetoes were rare in the days before Jackson; his six predecessors had turned back but ten bills total. Jackson exceeded that number by himself, starting with a veto of a measure to build a road from Maysville, Kentucky to Lexington....But the response to Jackson's bank veto made the earlier complaints sound like quibbles. Henry Clay called the veto a vestige of royalty and Jackson a would-be tyrant. Daniel Webster decried the `fearful and appalling aspect' of the power Jackson claimed for himself, and accused the president of trying to set `the poor against the rich.' Pro-bank papers gnashed their type. `A more deranging, radical, law-upsetting document was never promulgated by the wildest Roman fanatic,' one new England editor declared of the veto message. 58 The document was indeed flimsy in its legal logic. Historian Walter A. McDougall wrote that Amos "Kendall, the principal author of Jackson's veto message,... ignored serial Supreme Court decisions, the will of the Congress, and Biddle's responsible record. Instead he declared the monopoly `unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people." 59 Historian Robert V. Remini wrote that the veto "message claimed the Bank was unconstitutional, despite John Marshall's decision in McCulloch v. Maryland. It said that control of the institution rested in the hands of wealthy. `It is easy to conceive,' wrote Jackson, `that great evils to our country and its institutions might flow from such a concentration of power in the hands of a few men irresponsible to the people.' Not only did the President `vilify' the bank and its practices, but he repeatedly asserted presidential authority and privilege. The Bank was the agent of the executive branch, and in Jackson's opinion, the charter conferred powers on this institution that were both unnecessary and dangerous to the nation.'" 60 Charles Sellers observed: "Few pronouncements have had a greater impact on American politics." The veto message "denigrated monopolistic enrichment of the Bank's wealthy stockholders, extensive stock ownership by foreigners, and northeastern exploitation of the West and South. Flatly rejecting Chief Justice Marshall's McCulloch doctrine, it shocked conservatives by asserting that `the Congress, the Executive and the Court must each for itself be guided by its own opinion of the Constitution.'" 61 Historian James Curtis wrote: "Far from being a prescription for enlarged executive authority, the Bank veto was a clever campaign document designed to simplify the issues. Democrats asked voters to choose between the forces of entrenched aristocracy and simple government, between a foreign dictatorship and a native American hero, between corruption and innocence - between the Bank and Andrew Jackson." 62 Jackson had set up a battle not only over class but over the political structure of government. Jackson's veto effort was misdirected but sincere. "Andrew Jackson destroyed the Bank of the United States because it confounded the public and the private in its structure and its purposes. In so doing, he believed, it subverted the outcomes free and equal individuals would have arrived at in government as well as in the economy," wrote financial historian Susan Hoffman. She wrote: "All incorporated banking was unacceptable government interference in the economy, and Jackson saw the purpose of the national bank, once stripped of public fiscal agency, as nothing more than banking. To the intense frustration of those around him the president ignored the regulatory purpose served by the national bank's banking activity." 63 Economic historian Charles Sellers wrote: "The historic upwelling of a new American jingoism satisfied many needs. In a painfully fracturing society, it conferred civic dignity and social inclusion on patriotic working people. For the bourgeoisie, it quelled the conflict of labor militancy and Bank War. For the rising editors and politicians of Young America, it provided an appealing posture. Democrats were its main inciters because it muted the mounting native/Irish conflict in their working-class constituency. Most of all, perhaps, both Democrats and others embraced expansionist jingoism to mute mounting sectional conflict." 64 Jackson's opponents did not fully appreciate these factors. In response to the veto, Biddle wrote Henry Clay, by then himself a presidential candidate, on August 1: "You ask what is the effect of the veto. My impression is that it is working as well as the friends of the Bank & of the country could desire. I have always deplored making the Bank a party question, but since the President will have it so, he must pay the penalty of his own rashness. As to the veto message I am delighted with it. It has all the fury of a chained panther biting the bars of his cage. It is really a manifesto of anarchy - such as Marat or Robespierre might have issued to the mob of the faubourgh [sic. Faubourg] St Antoine: and my hope is that it will contribute to relieve the country from the dominion of these miserable people. You are destined to be the instrument of that deliverance, and at no period of your life has the country ever had a deeper stake in you. I wish you success most cordially because I believe the institutions of the Union are involved in it. 65 Congressional supporters of the Bank did not give up. Like Biddle, Clay miscalculated. Economic historian John Steele Gordon wrote that "when it was clear that Jackson would use a pocket veto to kill the bill, Henry Clay persuaded Congress to stay in session long enough to force Jackson to sign or veto the bill and state his reasons for doing so. Jackson, not exactly a man to back away from a fight, was only too happy to take up the challenge." 66 A day after Senator Daniel Webster led the counterattack, according to Remini, "Henry Clay added his contempt for the President's arguments in another crowd-pleasing speech on the Senate floor. If possible, there was even greater excitement in the chamber than when Webster spoke because of Clay's reputation as a gut fighter who would pull no punches in giving Jackson his due. And he obliged his listeners. He called the President's action `a perversion of the veto power.' The Founding Fathers never intended it for `ordinary cases,' he insisted. `It was designed for instances of precipitate legislation, in unguarded moments.'" 67 " The attempt to override the rechartering veto failed in the Senate. Nevertheless, Remini wrote: "Clay had high hopes that the Bank issue would defeat Jackson in the presidential election. Surely the American people now realized how essential the institution was for the financial stability of the country. Surely they realized that the President had assumed unconstitutional powers that would ultimately destroy the Union." 68 As Bray Hammond summarized the factors causing the BUS's demise: 1. The most important was the impatience of the state banks and of business enterprise with the federal Bank's restraint upon bank credit.

2. Paralleling this entrepreneurial resentment was the attitude of the agrarians, who hated all banks and distrusted the business world generally. A few of them understood that the federal bank was a corrective for the evils of inflation and that for practical reasons it should have their support; but most of them got no further than the fallacy that the bank of the United States was nothing but the biggest and worst `bank' of all. They blamed it for doing what its business enemies blamed it for not doing, i.e., making credit cheap and easy.

3. There was also the hostility of the states' rights politicians for a federal institution which penetrated the area of state jurisdiction and was conducted independently of state taxing and other authority.

4. The federal Bank was obnoxious to many not merely because it was a `bank' but because it was a corporation. This enmity, which ran back farther than the South Sea Bubble, was nursed by agrarians and also by business men who had not yet learned what a useful device the corporate form of business organization could be. The merchant world of the past had comprised individuals only, trading on their personal responsibility, and though the merchant world was now giving way to the complex world of multifarious business specialties, the idea persisted in many quarters that business should remain individualistic. This was the doctrine most militantly held by the Loco Focos.

5. A factor of more limited scope but of the greatest cogency was New York's determination to supersede Philadelphia. This was not a matter of mere vanity, by any means. New York's business community was the chief source of the Bank's funds, and yet the Bank was controlled by Philadelphians, who could say how much the New Yorkers might borrow `of their own money.' Boston and Baltimore also, without desiring New York's preeminence, wanted Philadelphia's ended.

6. Another similar factor of limited scope but utmost cogency at the outset was the Jacksonian principle that to the victor belonged the spoils. The federal bank was an organization to be manned by the faithful. This objective was soon supplanted by the view that the Bank, `as at present organized,' in the words Andrew Jackson often repeated, should be brought to an end. 69 1832 Election The 1832 presidential campaign represented a small revolution in American politics. Democrats held the first national presidential convention. Jackson biographer Donald Cole wrote: "While Jackson retreated to the Hermitage, his party ran a new-style campaign, using card files, passing out buttons, and carrying illuminated transparencies at night in their parades. Kendall and Blair coordinated the activities of hundreds of local organizations, with the Globe serving as a clearinghouse for Democratic newspapers. Democratic members of Congress saved money for the party by franking the copies of the Globe sent out to the faithful. The opposition tried to keep up by running articles in the Daily National Intelligencer, circulating pamphlets, and staging their own celebrations. Their success, however, was limited because the National Republicans and Anti-Masons were not fully reconciled to the new techniques and could not work together." 70 Jackson outsmarted them all. Woodrow Wilson wrote: "The folly of staking the fortunes of the Bank against the popularity of General Jackson at the polls was quickly enough demonstrated. It was much easier for the mass of men who now held the votes of the country to believe the Bank a dangerous and corrupt monopoly than to understand the arguments of statesmen who argued of its services to the government and to commerce. They recognized General Jackson as a man of their own instincts, and deemed those instincts a sure enough guide in politics. Statesmen might approve of the Bank, but the people thought of it only to suspect it, and preferred General Jackson to all the statesmen the Bank could muster to its standards. A second time they chose General Jackson President." 71 Historian Michael Holt wrote that "overly eager National Republicans had forged a mace with which Jackson could bludgeon them, not a sword for their champion. A masterpiece of political propaganda aimed directly at voters, Jackson's veto message denounced the Bank as an unconstitutional excess of national authority, as a monstrous concentration of private power that threatened popular liberty, and as an engine of aristocratic privilege that favored the rich at the expense of the poor." In his desperation to find a winning political issue for 1832, Clay had tied his presidential campaign to the reauthorization of the Bank of the United States - four years ahead of schedule. It was a big mistake. Holt wrote that "some National Republicans recognized in the fall of 1831 that Clay's long service in the House and Senate, his close identification with the American System, and his purported participation in the Corrupt Bargain made him precisely the wrong candidate to win converts to the National Republican cause." Jackson had many political enemies, but Clay was the wrong person to bring them together. Noted Holt: "Instead, they predicted accurately, Clay would repel Antimason and Calhounites and galvanize even disillusioned Democrats behind Jackson." 72 The bank veto set the stage for the fall presidential campaign between Clay and Jackson. Clay, known for his role in forging the Missouri Compromise and later the Compromise of 1850, girded for political warfare. So did Jackson, who played "everyman" to Biddle's "rich man." Biddle tried to frame the issue in economic terms. By identifying the Bank with Clay and the nation's economic elite, Andrew Jackson reenforced his own populist credentials. Jackson framed the conflict in terms of class. Jackson blamed the "rich and powerful" for using the "government [for] their self purposes." According to Jackson's veto message, "Every man is equally entitled to protection by the law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, 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." 73 Like Clay, Biddle had overreached, picking a fight with the wrong man. Jackson liked a fight and he didn't particularly care with whom he had to fight. Once in the fight, he would use any weapons necessary. Historian Walter A. McDougall wrote that "not only did Clay lack the votes to override Jackson's veto; he misjudged the electorate. To be sure, the veto did `cause all the Election to be contested on the principle of Bank or no Bank' and invite journals such as the North American Review to warn of `wild and reckless speculation, ruined confidence, worthless currency, and prostrate and broken credit.' But exhorting ordinary Americans to choose the `robber' Biddle over the saintly Jackson was like goading them to cry for Barnabas and crucify Jesus. The Democrats' party machines had all the ammunition they needed. Kendall and Blair reprinted the veto message in newspapers across the country, spinning the election as a showdown between democracy and aristocracy....So tone-deaf was Biddle that he distributed 30,000 copies of the veto message himself, on the assumption voters would see through its bombast. Voters instead heeded the president's warnings about the political threat posed by the BUS's concentration of wealth." 74 Voters responded to Jackson's populism rather than Biddle's economics. Biddle has miscalculated. According to John Steele Gordon, Biddle "hoped that Jackson would not want to make it a campaign issue. In the bare-knuckle politics of the era, when most newspapers were openly partisan and tendentious in their coverage, the fight over the bank was a brawl." 75 Indeed noted Jackson biographer David S. Reynolds wrote: "The election became largely a referendum on the Bank of the United States. The Jacksonians portrayed the BUS as a hydra-headed monster of corruption, while the National Republicans described it as the basis of a sound economy, calling Jackson a tyrant irresponsibly trying to destroy it." 76 The author of the veto message, Amos Kendall, was also the author of the Democratic campaign. And Clay was annihilated by a campaign against the "monster" of the Bank of the United States. Washington Globe editor Francis P. Blair, Jr., thundered: "Let the cry be heard across the land. Down with bribery - down with corruption - down with the Bank....Let committees be appointed in every township to prosecute every Bank agent who offers a bribe." 77 It is was sometimes difficult to separate differences of personality from differences of policy. Historian William Graham Sumner wrote in the mid-1830s that the anti-Jacksonians "took up cudgels in behalf of banks and bank paper, as if there would be no currency if bank paper were withdrawn, and as if there would be no credit if there were no banks of issue. In their arguments against the bullionist party, they talked as if they believed that, if the public Treasury did its own business, and did it in gold, it would get possession of all the gold in the country, and that this would give it control of all the credit in the country, because the paper issue was based on gold." 78 Perception triumphed over reality. Susan Hoffman wrote: "A common interpretation of Jackson's war on the second bank is that the people's champion slew the great monster of privilege on their behalf. This interpretation persists despite empirical work by historians showing that the bank was effective in providing and regulating money and popular with the people, the state banks, and state legislatures." 79 The bank's effectiveness, however, was not the primary issue. Jackson's leadership and popularity were at question and no force in American politics at that time could withstand him. The rechartering fight became shrouded in myth, but reflected fundamental constitutional differences. Robert E. Wright and David Cowen wrote: "The usual story is that Jackson abhorred banks, bankers, and banknotes and embarked on a personal vendetta to extinguish them. All that is true, but in the final analysis Jackson squelched the Bank because he believed that it was unconstitutional. He clearly stated that `congress has no constitutional power to grant a charter' despite the fact that in 1819, in the case McCulloch v. Maryland, the U.S. Supreme Court upheld the Bank's constitutionality. Not everyone, and certainly not Jackson, yet recognized the Court as the supreme and final arbiter of constitutional law." 80 Clay had miscalculated. The National Republican candidate in 1832 won only six states and was crushed 219-49 in the Electoral College by President Jackson, who demonized the Bank of the United States as the creature of a Northeastern elite. Historian Sean Wilentz noted that "During the campaign, both Jacksonians and National Republicans sounded as if the election was a referendum on the veto, and the Jacksonians got the better of the argument." 81 Biddle and Clay had pushed a fight they couldn't win. Removal of Deposits by Roger B. Taney In 1833 newly reelected President Jackson decided to remove federal government funds from BUSII and place them with favored state banks. Jackson had been thinking about his next move for years. Amos Kendall, the driving intellectual force, behind Jackson urged action. Historian Sean Wilentz wrote that "Kendall emphasized that the bank now posed a new political threat. Unless destroyed, Kendall charged, this `great enemy of republicanism' would resort to bribery, intimidation, and every other corrupt means to elect its own candidate to the White House in 1835 and regain its charter as soon as Jackson left office. Arousing Jackson's always sensitive manly honor, Kendall claimed that unless he moved decisively, his backers would decide he was `wanting either in the courage or in the good faith' to finish what he had started." 82 Historian Arthur M. Schlesinger, Jr., wrote: "Jackson seems to have decided on this course shortly after his re-election. It was his own plan, `conceived by him,' as Benton later wrote, `carried out by him, defended by him, and its fate dependent upon him'." 83 Historian H. W. Brands wrote that Jackson "dangled the possibility of creating a new national bank, confined to the District of Columbia, even as he polled his cabinet secretaries on the feasibility of relying on state banks to handle the fiscal affairs of the federal government. Jackson's survey had a dual purpose: to test his ideas and to test the loyalty of his secretaries. No less than Biddle did he know that removing the deposits would mean war, and he wanted to be sure that his lieutenants were as devoted to the cause as he was." 84 "The one who displayed the greatest verve was Roger Taney," wrote historian H. W. Brands. "Like a seasoned prosecutor, Taney presented evidence that Biddle and the bank had consciously manipulated the money supply before the last congressional session. `Can any impartial and unprejudiced mind doubt the motive?' he asked rhetorically. `Was it not to compel the people to continue its monopoly and privileges, not on account of the benefits conferred by it, but to escape from the suffering which the corporation had the power to inflict?' Taney demonstrated that Biddle had bought favorable press coverage for the bank during the fight for renewal of the charter; this practice, of employing the people's money to manipulate the democratic process, was `pregnant with so much evil,' Taney told Jackson, that it alone was cause for the severest censure. As for alternatives to Biddle's bank, Taney contended that state banks, `judiciously selected and arranged,' would be able to perform the fiscal tasks of the federal government and supply `a general currency as wholesome and stable as that of the United States Bank.' Taney acknowledged that taking on the bank was fraught with peril. Biddle would wage a `fierce and desperate struggle' to preserve the bank and its prerogatives. But the risk was worth taking. `The purity of our institutions and the best interests of the country call for prompt, firm and decisive measures." 85 Woodrow Wilson wrote that Jackson's considered his reelection "a deliberate verdict against the Bank,—a command to destroy it; and its fate was sealed. The President proceeded with characteristic promptness and directness. He first turned to Congress (December, 1832), the very Congress which had passed the vetoed bill, and asked for an investigation, to ascertain whether it was still safe to leave the deposits of the government with the Bank, in view of its mismanagement and probable insolvency. No one but General Jackson and a handful of politicians about him seriously questioned the good management of the Bank or for a moment doubted its solvency, even then, with its charter evidently doomed; and the House very emphatically declared that in its opinion the deposits were safe. General Jackson, accordingly, determined to act without Congress and on his own responsibility. He resolved that the Bank should no longer be given the custody of the public funds." Wilson wrote of the Cabinet shakeup that Jackson's plan required: The statute under which the Bank was incorporated conferred the power to act in that matter, not upon the President, but upon the Secretary of the Treasury. The President therefore wrought his will upon the Treasury Department. Mr. [Louis] McLane, whom he knew to be favorable to the Bank, he transferred from the secretaryship of the Treasury to the secretaryship of State, appointing Mr. Edward Livingston, then Secretary of State, minister to France, and putting Mr. William J. Duane, of Pennsylvania, who was known to be an opponent of the Bank, in charge of the Treasury Department. Mr. Duane showed unexpected scruples, and declined, out of a mere sense of duty, to make way for the execution of the President's radical plan. He was dismissed, therefore, within four months of his appointment, and the Treasury was put into the hands of Mr. Roger B. Taney, of Maryland, the Attorney General, whose views the President knew to be his own (September 23, 1833). An order from Mr. Taney forthwith directed (September 26) that the revenues thereafter accruing should be deposited, not with the Bank of the United States, but with certain state banks selected by the Secretary for the purpose, and that the balance of the government in the Bank of the United States, then nearly ten millions, should be drawn upon for the government's expenses until exhausted. The thing was done at infinite hazard of financial panic. The Bank was obliged to curtail its loans very sharply and at once, in order to bear the drain, which was to be offset by no replenishment; there was immediate distress in the money market, a sudden flutter of credit; and only the sound condition of business at the moment prevented crisis and disaster.



The President spoke of the matter in his annual message with his usual intrepid frankness: took the whole responsibility for what had been done upon himself, and justified it. No one whose opinion was of any weight in such a matter had approved of the removal of the deposits; his own cabinet had been opposed to it, as both unwise and of doubtful legality, and had united with Mr. Duane in trying to turn him from his purpose; but he had gone his way without pause, hesitation, or excitement, like a man convinced and confident. 86 Jackson's lieutenants were divided. Determined support for the removal of deposits in Jackson's kitchen cabinet confronted strong opposition in the official Jackson cabinet. Robert E. Wright and David Cowen wrote: "Certain that he was right, and that the American people had spoken, Jackson moved in for the kill, as he had done so many times before. He ordered the Treasury Department to withdraw the national government's deposits from the Second bank and place them in so-called `pet banks,' state-chartered banks loyal to the Jackson administration." 87 Historian Daniel Feller wrote: "On September 18, having laid his ground carefully, Jackson read a paper to the cabinet announcing his decision to begin the removal. Virtually instructed to give the necessary order, Duane, to Jackson's astonishment, flatly refused. He also, refused to resign, so Jackson dismissed him and put in Taney, who had helped draft the cabinet paper, as acting Treasury secretary. Taney promptly ordered the removal." 88 Economic historian Susan Hoffman wrote of BUSII: "This ended its service as the government's fiscal agent. More important, because the bank relied on manipulating the public deposits to regulate the money supply, removing them seriously eroded its ability to pursue its primary purpose." 89 Sean Wilentz wrote: "Taney, placed in charge of the transit of funds, advanced with care - and with one eye fixed warily on Nicholas Biddle." The removal of federal funds from the BUS began on October 4. Merrill D. Peterson wrote: "Jackson...feared that the bastard coalition of Clay and Calhoun, consummated in the nullification crisis, would merge the sinister influence of the Bank to the corrupt influence of the treasury surplus and thus doom the country to iniquity." Although Daniel Webster sought conciliation with Jackson, the Bank chose Clay to lead its opposition to Jackson's "usurpation" of executive power. Clay duly framed the issue in a letter to Biddle: "If we take up the Bank, we play into the adversary's hands. We realize his assertions that the only question is a renewal of the Charter. It is the usurpation which has convinced the Country." 90 Clay went on the attack in the Senate, introducing a resolution to censure Jackson for firing Duane and another for failure adequately to explain its removal of federal funds from the BUSII. Again, Clay was ineffective. The Demise of the Bank Biddle, meanwhile, again overestimated his power and miscalculated his politics. He probably thought the BUS was too big to fail. Biddle wrote that the President "thinks that because he has scalped Indians and imprisoned Judges, he is to have his way with the Bank. He is mistaken." 91 Biddle thought he could break Jackson, in Sean Wilentz's words by causing "general hardship that would agitate state banks other than the pets and force Congress to step in on the BUS's behalf." 92" Biddle acted rashly. Historian Wilentz wrote: "As early as July, he warned the Bank's New York branch of his plans to `crush the Kitchen Cabinet.' On the day the removal order went into effect, Biddle enlisted his directors to agree to eventual contractions of credit. In private, Biddle admitted that he hoped to cause general distress and force the House to abandon its party allegiances and join with the Senate in coming to the Bank's aid. No matter what, he would save his beloved bank." 93 Historian Edward Pessen wrote of Biddle that the "policy of contraction, initiated in August 1833 and continued for more than a year, was undertaken by a man fighting fire with fire, ready to drive banks to their knees and bring economic activity to a halt, if to do so might compel the government to reconsider its policy. Both the effects of the retraction and Biddle's role in causing it have been exaggerated." 94 Biddle was engaged in a dangerous political and economic duel with Jackson. In early March 1834, Biddle wrote that Jackson "by removing the public revenues has relieved the Bank from all responsibility for the currency." 95 Historians Wright and Cowen wrote: "Biddle should have responded as he had in 1825, adding liquidity to the system to calm investors' nerves. But he stopped acting as the nation's central banker, seeking only to save himself and his institution. Instead of extending credit, he curtained it drastically, hoping to induce a recession that would force Americans, and Jackson, to beg for mercy." 96 " Daniel Feller wrote that the credit contraction triggered "business distress; and Congress found itself besieged by petitioners imploring relief and generally blaming the president. In the Senate, the Clay-Calhoun opposition axis, forged the year before, was in the majority. Many of its members had favored rechartering the bank of the United States, but even some critics of the Bank rebelled at Jackson's peremptory mode of acting against it. He had deliberately shut out Congress by executing the deposit removal while it was out of session, had he had run roughshod over his own cabinet, effectively reducing the Treasury secretary from his statutory role as a quasi independent custodian of the federal purse to a mere subordinate functionary, a Lackey of the president's will." 97 Biddle may have been willing to fight, but he was no match for the old general. Historian Edward Pessen wrote: "Biddle's explanation to friends of why he would not relent displays his arrogance and at the same time the ingenuousness of his conviction that the Bank's welfare was the nation's highest political and economic good: "But, if, from too great sensitiveness, from the fear of offending, or the desire or conciliating, the bank permits itself to be frightened or coaxed into any relaxation of its present measures, the relief will itself be cited as evidence that the measures of the government are not injurious or oppressive, and the bank will inevitably be prostrated." 98 Politically, Jackson had calculated correctly. Biddle had calculated badly. Jackson had done a far better job defining the economic and political situation than Biddle could or would. Unhappy Americans understood the impact of Biddle's policies even if they did not understand his principles. Historian Sean Wilentz wrote: "Infuriated by the Bank's continued contraction of credit, business leaders from New York and Boston demanded over the spring and summer of 1834 that Biddle relent lest they repudiate him publicly and bring fully to light how his policies were harming the nation. Finally, in mid-September, Biddle gave way, resuming the Bank's lending, halting the so-called Biddle Panic, and ending his effort to for Jackson's hand." Economically, Jackson's judgement regarding the transfer of funds to pet banks was flawed. Historian Daniel Walker Howe wrote: "The system in which the federal government deposited its funds in `pet' state banks had originated in haste when Jackson removed the deposits from the BUS. Jackson had always regarded it as an `experiment.' Although Treasury Secretary [Levi] Woodbury had dutifully regulated the pets, an administration committed as a general principle against federal regulation and planning did not find the task congenial." 100 The bank war pushed Jackson into further unwise economic actions regarding the pet banks to which it ordered its assets transferred. Bray Hammond noted: "The year 1834 ended and 1835 passed with nothing to warrant hope; the Bank wavered between the prospect of liquidation and that of becoming a state bank. In February 1836 the charter expired and the federal Bank ceased to exist." The Bank of the United States became a state bank, the United States Bank of Pennsylvania. 101 Historian Yonathan Eyal wrote of the pet banks: "Some proved solvent and responsible, others less so, though all were loyal to the Democratic Party." Jackson biographer Donald B. Cole wrote: "Despite their uncertain position, Jackson and Treasury Secretary Taney took the offensive as soon as Congress convened. In his annual message the President announced that he had been forced to remove the deposits from the Bank because it had been `attempting to influence the elections of public officers.' He denounced the recent contraction policy of the Bank as an effort `to control public opinion, through the distresses of some and the fears of the others.' The next day Taney carried on the attack with a detailed report defending removal and accusing Biddle of squeezing about $62.5 million from the financial community in the two months preceding the removal of the deposits. According to his reasoning, public deposits at the Bank had increased by some $2.25 million during that time, and the loans and discounts of the Bank had decreased by over $4 million. Biddle, he said, had started the panic." 102 Jackson expanded his attack on the bank by appealing to the general public. Economic historian Charles Sellers wrote: "When a Democratic Congress again proved deaf to criticism of Biddle's Bank, Old Hickory and his anti-bank coterie launched a class appeal over the heads of the politicians. Jackson newspapers took up the hard-money polemic against a paper aristocracy trumpeted by Blair and Kendall in the Globe and Benton in the Senate." Sellers wrote: "By the time the `panic session' of Congress met in December 1833, businessmen everywhere were under heavy pressure, memorials to alleviate distress by Calhoun, and Webster were united in a `Whig' opposition to `executive usurpation' that controlled the Senate." 103 Jackson's intransigence was matched by Biddle's intransigence. Jackson vigorously rebuffed business critics who visited the White House: "Go to Nicholas Biddle. We have no money here, gentlemen. Biddle has all the money. He has millions of specie in his vaults, at this moment, lying idle, and yet you come to me to save you from breaking." 104 In early 1834, National Republicans used the Democrats' narrow majority in the Senate to launch a campaign against the removal of deposits. Senator Clay delivered an impassioned speech on the Senate floor in which he addressed Vice President Martin Van Buren, then presiding over the Senate. He urged him to tell President Jackson that the nation was "bleeding." Clay demanded: "Tell him it is nearly ruined and undone by the measures which he has been induced to put in operation." When Clay finished, Van Buren dramatically left the dais to go to where Clay was standing. Then undramatically, he asked for a pinch of snuff. 105 The political tide was running against Clay and Biddle. Again, they had miscalculated. Historian Arthur M. Schlesinger, Jr., wrote: "More and more merchants were coming to believe that [Biddle] was carrying the money pressure farther than necessary, and few would agree that it was worth breaking `all the other Banks and all the merchants' to restore Nicholas Biddle to power. Late in February, Governor George Wolf of Pennsylvania, hitherto a leading Bank Democrat, came out against the Bank. Clay probably sensed the reaction in March when Van Buren offered to bet him a suit of clothes on the elections in Virginia and New York City. The Senator responded gallantly that if the people did support the administration, he would fear self-government had failed; but it is noticeable that he did not take up the Vice-President's wager." 106 Economic historian Charles Sellers wrote that "the Bank's rash irresponsibility became too egregious for even its supporters. Pro-Bank Democrats in Pennsylvania were alienated when the financial pressure sabotaged a state bond issue late in February, and in March elder statesman Albert Gallatin organized a committee of New York's most prominent financiers to demand that Biddle relax the pressure. Finally in early April, as angry comprehension of Biddle's abuse of power swept the country, House Democrats mustered a majority for resolutions upholding removal and opposing recharter. So conclusively had the big Bank convicted itself that even Whig politicians were compelled to abandon it. Except for the formalities of winding up its business, the Second Bank of the United States was dead." 107 Historian James Schouler noted: By 1834 there were some five hundred or more local banks in the United States whose aggregate circulation was several times greater than that of the monster bank which Jackson's pack was running down; and, as clear observers noted, the coexistence of half a thousand distinct currencies in this country was the great defect of its financial system. Here our National Bank was far less of a regulator than other such banks abroad. This mass of chaotic paper struggled for preference, the more remote country banks having rather the advantage for keeping out small notes; nor until thirty more years had swept by did the compulsion of civil war bring out a new and formidable weapon from the national armory, that of taxing State circulation out of existence, so as to occupy the whole Union with a national paper currency. Yet with every disadvantage the Bank now panting for life had furnished a perfectly sound currency for fifteen years or more, and brought local exchange down to a very moderate cost. Its superior credit, the establishment of its branches at all the great cities of the Union, the use of its notes, as the law permitted, in all payments to the government, had given to its circulation the preponderance. All this was soon to melt away before the breath of Jackson's displeasure; and what currency could fill the chasm it left no one was able to forecast. Derangement and distress were sure to attend each new step in an experimental process....Jackson and his advisers soon felt their dilemma, and the deposits had not long been transferred when a bullion proscription was drawn up to ease the griping pains of the community. Secretary Taney first promulgated the plan officially in a letter which was sent to the ways and means committee when bank note shaving was at its height and every State currency yielded its clip of discount to the broker. Jackson himself, in one of his grotesque interviews, had thrown out the hint in February. The administration now undertook to introduce a metallic currency for small amounts; this was done by inducing the State banks which took the public deposits to stop issuing paper notes under five dollars, then larger ones such as ten dollars, and finally, with all the aid possible from State legislatures, to restrict bank notes to twenty dollars and upwards. The Bank of the United States had been restrained by its charter from issuing notes of less amount than five dollars; but local banks had not been thus restrained. This notion was not bad so far as it could be carried into practice; and, though at sword's points, the two Houses of Congress joined to help the President's experiment by passing acts for regulating the coinage standard and infusing more gold and silver into the currency of the Union. The idea of reforming our gold currency had long been entertained. Jackson took the strongest interest in the passage of these bills so as to get his shining coins into the people's pockets; and going to Tennessee in the recess he toasted gold and silver at a public dinner as "the true constitutional currency of the United States," which he said could protect our labor without the need of a national bank. The jingling of these new gold coins about the country, known as Benton's yellow jackets, helped the President in the fall elections; but it was only a drop in the bucket of expedients so far as real relief was concerned. Indeed, the panic, which was due so much to a temporary tightness and fears not realized of something worse, began to mend by midsummer." Schouler contended: "For a brief spell, in fact, the monetary situation was sound again. The National Bank had been forced in self defence to strengthen itself. State banks, too, took due precautions to qualify themselves for receiving the public funds. But the deeper mischief of the new situation developed slowly; and as commonly happens when the money market is deranged, the people slid into the climax quite unaware of it, mistaking the flush of fever for prosperity. Jackson's gold dollar could not crowd out the baser paper of the local banks, its nominal equivalent. When bills are redeemable at sight in specie, banks will hoard bullion to meet the demands at their counter; the community prefer paper meantime as their more convenient medium of traffic, since the sound currency of a nation is not gold, but the paper which is as good as gold. These precious mint drops were soon carried under the vast and rising flood of pulp money. For now sprang up in the States a mania for new banks and now paper. The twenty three pet banks with which Kendall organized the new system in 1833 were all too few to hold custody of the public moneys. Every quarter of the Union, every State, every district having party constituents to please, must run with its barrel, its pitcher, or its cup to share the Pactolian stream which spouted from the national Treasury. Great was the lobbying to procure local charters in such times; the New York legislature this spring incorporated ten new banks, besides increasing the capital of one already existing; a movement for a fifty million bank in Boston was engineered by Democratic magnates in August; and this was only the beginning of a fever which made other States soon beat the ground in frenzy. The banks already admitted to Jackson's favor closed up to keep others out; but some got into the pet circle by steady pressure, others by a flying leap, while those which were kept out altogether had very little local supervision to restrain them from being as reckless as they chose. And thus did it come about that bank loans were enormously expanded and the business of the country worked up into a fever of speculation whose crisis was reached in three years. Instead of stringency in the money market, the evil at first apprehended, Jackson's empiricism cost the country in the end a calamitous inflation. 108 While the BUSII withered, prosperity continued for several years as speculation and state bank credit helped fuel the economy. Economic historian John Steele Gordon wrote that "nowhere was speculation more rife than in the West, where land rather than securities was the focus of attention. People who had no intention of settling bought large tracts of land from the federal government and paid for them with paper money borrowed from local banks in ever greater amounts." 109 While the BUSII withered, prosperity continued for several years as speculation and state bank credit helped fuel the economy. Economic historian John Steele Gordon wrote that "nowhere was speculation more rife than in the West, where land rather than securities was the focus of attention. People who had no intention of settling bought large tracts of land from the federal government and paid for them with paper money borrowed from local banks in ever greater amounts." 110 Historian Walter A. McDougall wrote: "Whatever one thinks of the assault on the BUS, it seems logical to blame the crunch and inflation that followed on the actions of Jackson and Biddle. In the absence of laws requiring banks to hold sufficient reserves of specie and or specie-backed bonds (or both) to back up their paper instruments, evisceration of the BUS all but invited `wildcat banks' (a term invented in frontier Michigan) to issue all the loans and `rag money' the market would bear. And the market bore plenty because pioneers and speculators hungered to purchase millions of acres of land in the West. More plentiful, less reliable paper money helped create inflation and a land bubble certain to burst when the chickens came home to roost. Only that isn't what happened. The statistics reveal (1) no panic or recession in 1834 caused by Biddle's contraction; (2) no irresponsible lending by banks with inadequate reserves; (3) a land bubble that relieved inflation rather than contributed to it; and (4) an eventual panic that had less to do with American policies than with global trends." 111 Historian Jenny B. Wahl took another analytic tact; she wrote that "recent empirical work indicates that Jackson may not have been quite as blameless as once believed. By weakening public confidence in paper currency at a time when the United States practiced fractional reserve banking, adhered to an international gold standard, curtailed branching by state-chartered banks, and lacked a national lender of last resort, Jackson's war against the Bank generated more casualties than just the institution itself." 112 The transfer of deposits to the state banks helped fuel land speculation. Historian Edward M. Shepard wrote: "The craze for banks and credits was unbounded before the removal of the deposits had taken place, and before their great increase could have had serious effect. Between 1830 and January 1, 1834, the banking capital of the United States had risen from $61,000,000 to about $200,000,000; the loans and discounts of the banks from $200,000,000 to $324,000,000; and their note circulation from $61,000,000 to $95,000,000. The increase from January 1, 1834, to January 1, 1836, was even more rapid, the banking capital advancing in the two years to $251,000,000, the loans and discounts to $457,000,000, and the note circulation to $140,000,000. But there was certainty of disaster in the abnormal growth from 1830 to 1834. The insanity of speculation was in ample tho unobserved control of the country while Nicholas Biddle still controlled the deposits, and was certain to reach a climax: whether they stayed with him or went elsewhere." 113 New banks created new money that fueled new speculation. Historian Edward Pessen wrote: "Most of the nation's money was issued by banks either operated by state governments or, more typically, whose state governments had granted charters to the corporations which ran them. Many of the new banks were speculative ventures pure simple, whose managers were operators in the worst sense of the word. They should not be confused with some of the older banks in the great cities, whose notes commanded as much respect as those of the BUS." 114 The Jackson bank policy was politically populist and economically unsustainable. Historian Wyman Boardman wrote: "Jackson and the Democrats favored a policy that made land available easily and cheaply. This contradicted the hard money policy because it called for cheaper money and expansion of credit so that those with little or no savings could take up enough acreage for a self-sufficient farm. In addition, the more liberal the policy, the more it encouraged speculators to buy up large tracts and hold them until they rose in value. The common people - farmers, mechanics, and laborers - favored the Jacksonian policy. Manufacturing interests wanted a stricter policy so that the labor supply would not be decreased, thereby raising wages. Not nearly as many urban workers went to buy public lands as was once supposed. Most of those who went west to farm were already farmers, or sons of farmers seeking their own homesteads, or, increasingly, emigrants from Europe." 115 Financial historian Margaret G. Myers noted: "By June 1836 thirty-three banks were being used as depositaries. The new Secretary of the Treasury, Levi Woodbury, urged them to build up their specie reserve and to curtail their issue of small notes, but had not way of enforcing his request unless he withdrew the deposits altogether. Both the President and the Secretary professed to be delighted with the manner in which the banks were handling Treasury funds and making transfer from one part of the country to another." 116 Specie and the Specie Circular Jackson achieved his goal of eliminating the national debt, albeit briefly. Historian H. W. Brands wrote: "When the federal accounts were tallied on January 1, 1835, the United States government was no longer in debt. Jackson had been paying down the debt since his first day in office, in the Jeffersonian belief that the debt was a Federalist plot to fatten bankers and subvert the republic. After six years, his administrative reforms and spending vetoes paid off in this proud accomplishment, which gave the lie to charges that a democracy could never control its fiscal appetites." The cure spawned another disease, wrote Brands: But if the fiscal problem had been solved, the monetary problem remained. In fact it got worse, primarily as a result of Jackson's war against the Bank of the United States. Freed from the restraints Biddle's bank had imposed, the state banks issued notes by the basketful. These fueled a rampant speculation in every kind of commodity. Jackson couldn't do much about the speculation overall, except worry that it jeopardized the stability of the economy and threatened the welfare of millions of ordinary people. But he could curb the speculation in land, which had particularly painful effects on folks trying to get started in farming. 117 The economy continued to prosper through 1836. Historian Reginald Charles McGrane wrote: "By the spring of 1835 the country apparently had forgotten its past disorders. The price of cotton rose from 11 cents a pound in 1834 to 16 cents a pound in 1835. The quantiy of public lands sold in 1835 was three times the amount of 1834. Not only was the United States out of debt, but largely through this amazing sale of the public domain, she was piling up a surplus in her treasury. The value of property in New York was higher than it had been for five years, business was brisk, and the city assumed a new aspect." Two actions in the summer of 1836 changed the economic dynamics - one an act of Congress not really supported by the Administration and the other an act by the Administration not supported by Congress. The Deposit Act of Congress provided for the distributed of the federal surplus to the states. Historian Major L. Wilson said: "Because the Deposit Act was inflationary in intent, the president was expected to veto it. But Jackson was apparently prevailed upon to sign it by the argument that a veto, at a time of credit and currency contraction, might defeat Van Buren's bid for election." Wilson said: "Contrary to the intention of its chief sponsors, the Deposit Act abetted the forces of contraction. In the execution of the act, some of the Treasury's funds were withdrawn from the old deposit banks in order bring their holdings down to the ratio, prescribed in the act, of three-fourths of their capital." Wilson noted: "With regard to the existing Treasury surplus, a second part of the act prescribed that it be distributed among the states in four quarter