Andrew Jackson and the Panic of 1837

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Jackson fights the Bank in 1832 (1833 print). Source: Wikipedia

 

Tennessee’s Andrew Jackson was the seventh president and the founder of the modern Democratic Party. Nicknamed “Old Hickory” for his tough persona he represented an exceptionally strong form of democratic (rather than republican) populism and crusaded, successfully, both against the Second Bank of the United States (BUSII) and currency (even that convertible to specie). Many historians attribute the Panic of 1837 — a depression that lasted five years — to his financial and monetary policies.

Jackson had a long-time hatred of banks and a deep commitment to hard money. When Kentucky Senator Henry Clay pushed for early rechartering of the Second Bank of the United States as a prelude to a presidential campaign against Jackson in 1832, Nicholas Biddle, president of BUSII went along. The legislation passed Congress, but Jackson overruled key members of his own cabinet in his willingness to veto the bill. In his message vetoing a bill re-chartering of the Second Bank of the United States, Jackson wrote:

A bank of the United States is in many respects convenient for the Government and useful to the people. Entertaining this opinion, and deeply impressed with the belief that some of the powers and privileges possessed by the existing bank are unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people, I felt it my duty at an early period of my Administration to call the attention of Congress to the practicability of organizing an institution combining all its advantages and obviating these objections. I sincerely regret that in the act before me I can perceive none of those modifications of the bank charter which are necessary, in my opinion, to make it compatible with justice, with sound policy, or with the Constitution of our country. …

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by 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. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles.

Nor is our Government to be maintained or our Union preserved by invasions of the rights and powers of the several States. In thus attempting to make our General Government strong we make it weak. Its true strength consists in leaving individuals and States as much as possible to themselves-in making itself felt, not in its power, but in its beneficence; not in its control, but in its protection; not in binding the States more closely to the center, but leaving each to move unobstructed in its proper orbit.

Experience should teach us wisdom. Most of the difficulties our Government now encounters and most of the dangers which impend over our Union have sprung from an abandonment of the legitimate objects of Government by our national legislation, and the adoption of such principles as are embodied in this act. Many of our rich men have not been content with equal protection and equal benefits, but have besought us to make them richer by act of Congress. By attempting to gratify their desires we have in the results of our legislation arrayed section against section, interest against interest, and man against man, in a fearful commotion which threatens to shake the foundations of our Union. It is time to pause in our career to review our principles, and if possible revive that devoted patriotism and spirit of compromise which distinguished the sages of the Revolution and the fathers of our Union. If we can not at once, in justice to interests vested under improvident legislation, make our Government what it ought to be, we can at least take a stand against all new grants of monopolies and exclusive privileges, against any prostitution of our Government to the advancement of the few at the expense of the many, and in favor of compromise and gradual reform in our code of laws and system of political economy.

Clay and Biddle had badly miscalculated. Although BUSII had a strong economic track record and broad political support, the President’s popularity was stronger and his fighting instincts were well honed. Jackson proceeded to order his Treasury Secretary to withdraw federal funds from the bank, depositing them in a series of state and local banks derided as his “pet banks.” This helped precipitate a rush in land speculation and state government investments in internal improvements. Such economic overheating needed to be cooled. In 1836, Jackson issued the Specie Circular, an executive order requiring gold and silver be used for the purchase of government lands after August 15, 1836. This precipitated severe monetary contraction, and a series of banking collapses leading to the Panic of 1837 and an ensuing depression which lingered for over five years. Pressured by Jackson, successor Martin Van Buren refused to reverse Jackson’s policies. “The Little Magician” from New York lacked, however, Jackson’s political popularity. According to historian Reginald Charles McGrane, in The Panic of 1837: Some Financial Problems of the Jacksonian Era (University of Chicago Press, 1924; First Phoenix Edition 1965)):

“First, in order of time as well as of importance, of the long train of events that prepared the way for the panic of 1837, was the destruction of the United States Bank, and the subsequent removal of deposits. The banks selected to receive these governmental funds immediately began to extend their loans; while the hope of obtaining a portion of the deposits led to the creation of hundreds of new banks. Merchants were tempted and invited to borrow from the banks in order to enlarge their business operations. The value of all kinds of property rose to fabulous heights. Men of limited resources, in their mad haste to be rich, bought land, city lots, and stocks. A restless spirit of adventure and daring enterprise swept the nation. Over-trading, speculation, and investments in unproductive undertakings became the dominant note in American society. The sales of public lands outstripped the wildest expectations; and as our nation paid off its debt, and began to pile up a surplus in the treasury, largely as the result of the sales of the public domain, our credit was expanded to maintain the overaction in trading. …

“But this state of unnatural and delusive prosperity could not always last.” (Op. cit. pp. 91-92)

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