Creature From Jekyll Island by G. Edward

Congressmen, Senators, or other officers of the federal government are specifically and wisely excluded. The college is supposed to select a President strictly on the basis of his integrity and executive ability, not his party label, political connections, good looks, charisma, or stirring orations. The people may elect their Congressmen, but the electoral college chooses the President. Thus, it was intended that the President would have a different constituency from Congress, and this difference was important to insure the balance of power that the framers of the Constitution worked so hard to create. As a means of keeping government under control, it was a truly brilliant piece of political engineering.

All of that was changed in the election of 1832. One of the sad facts of history is that good causes often are the occasion for establishing bad precedents. Jackson's fight against the Bank of the United States was one of those events.

SUMMARY

The government had encouraged widespread banking fraud

during the War of 1812 as an expedient for paying its bills, and this had left the nation in monetary chaos. At the end of the war, instead of allowing the fraudulent banks to fall and letting the free market heal the damage, Congress decided to protect the banks, to organize the fraud, and to perpetuate the losses. It did this by creating the nation's third central bank called the Second Bank of the United States.

The new bank was almost an exact carbon copy of the previous one. It was authorized to create money for the federal government and to regulate state banks. It influenced larger amounts of capital and was better organized across state lines than the old bank.

Consequently its policies had a greater impact on the creation and extinguishing of the nation's money supply. For the first time in 1

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our history, the effects began to ricochet across the entire country at once instead of being confined to geographical regions. The age of the boom-bust cycle had at last arrived in America.

In 1820, public opinion began to swing back in favor of the sound-money principles espoused by the Jeffersonian Republicans.

But since the Republican Party had by then abandoned those principles, a new coalition was formed, headed by Martin Van Buren and Andrew Jackson, called the Democrat Party. One of its primary platforms was the abolishment of the Bank. After Jackson was elected in 1828, he began in full earnest to bring that about.

The head of the Bank was a formidable adversary by the name of Nicholas Biddle. Biddle, not only possessed great personal abilities, but many members of Congress were indebted to him for business favors. Consequently, the Bank had many political friends.

As Jackson's first term of office neared its end, Biddle asked Congress for an early renewal of the Bank's charter, hoping that Jackson would not risk controversy in a reelection year. The bill was easily passed, but Jackson accepted the challenge and vetoed the measure. Thus, a battle over the Bank's future became the primary presidential campaign issue.

Jackson was reelected by a large margin, and one of his first acts was to remove federal deposits from the Bank and place them into private, regional banks. Biddle counterattacked by contracting credit and calling in loans. This was calculated to shrink the money supply and trigger a national panic-depression, which it did. He publicly blamed the downturn on Jackson's removal of deposits.

The plan almost worked. Biddle's political allies succeeded in having Jackson officially censured in the Senate. However, when the truth about Biddle's strategy finally leaked out, it backfired against him. He was called before a special Congressional investigative committee to explain his actions, the censure against Jackson was rescinded, and the nation's third central bank passed into oblivion.

Chapter Eighteen

LOAVES AND FISHES

AND CIVIL WAR

Attempts to stabilize the banking system by

political measures, including regulation of frac-

tional-reserve ratios and establishing bank-failure

insurance funds; the failure of all such schemes;

the resulting economic conditions that led up to

the Civil War.

As detailed in the previous chapter, by 1836 the hydra-headed monster had been slain and, true to the President's campaign promise, the nation had Jackson and no Bank.

In April of that year, the Administration moved to consolidate its victory and pushed a series of monetary reforms through Congress. One of these required all banks to cease issuing paper notes under five dollars. The figure later was increased to twenty dollars, and its purpose was to compel the nation to return to the use of gold and silver coin for everyday use, leaving bank notes primarily for large commercial transactions. The White House also announced that, in the future, all federal land sales would require full payment in 'lawful money,' which, of course, meant precious-metal coins.1

It must be remembered, however, that even though the Bank of the United States was dead, banking was very much alive, and so were Jackson's enemies. Much to the disappointment of the hard-money advocates, these measures were not sufficient to usher in the millennium. Not only were they inadequate by themselves, they were soon circumvented by the development of new banking techniques and eventually were dismantled completely by a fickle Congress.

1- Otto Scott, The Secret Six: The Fool as Martyr, Vol. Ill of The Sacred Fool Quartet (Columbia, South Carolina: Foundation for American Education, 1979), p. 115.

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