A Counterfeiter's Paradise (23 page)

WITHIN A YEAR OF HIS INAUGURATION,
Governor Hiester had good news to report. In his annual address to the state legislature, he announced
that the “pauperism” that plagued Pennsylvania in recent years was on the decline. By 1821, the country had begun a full economic recovery. Credit started to flow, the value of banknotes stabilized, and prices rose. Foreign exports and domestic manufacturing slowly revived. The Second Bank of the United States, after years of mismanagement, had finally found its footing under the stern stewardship of Langdon Cheves, who assumed the presidency in 1819. Cheves fired inept employees, curbed salaries and expenses, and, most important, overhauled the Bank’s balance sheets. He restored its capital by demanding that state banks pay their balances and redeem their notes, and limited its liabilities by steadily reducing the number of the Bank’s bills in circulation. Anchored by Cheves’s sober leadership, the American economy looked as if it might grow at a more measured, manageable pace and avoid the pitfalls that produced the Panic.

But there were warning signs ahead. The factors that produced the banking boom in the first few decades of the Republic’s existence only intensified in the coming years. Immigrants poured in, settlers pushed west, and the Industrial Revolution vastly expanded the scope of manufacturing and transportation. As the country accelerated in new directions, the materialism that had always been present in American life became dominant. The wise men of the eighteenth century—Benjamin Franklin and Alexander Hamilton, among others—were now seen as quaint; their thrift and restraint no longer seemed relevant in the aggressively acquisitive, steam-powered America of the future. The new economy, however, needed old-fashioned fuel: paper credit. The same tool that made it possible for colonists to trade goods and pay taxes in the seventeenth century would be used to build canals and textile mills in the nineteenth. But like steam, credit had to be handled carefully. In the right proportions, it could be a tremendous source of energy; too much, on the other hand, could set off an explosion.

Nicholas Biddle, who succeeded Cheves as the Bank’s president in 1823, was not an obvious choice for the position. A lively, candid man
with a round face and curly hair, Biddle belonged to a distinguished Philadelphia family but had little business experience to recommend him for the job. No one doubted his intelligence, however. Biddle had edited the authoritative version of Lewis and Clark’s journey, served in the Pennsylvania legislature, and traveled throughout Europe, where he had devoted months to examining Greek and Roman ruins. Once, when attending a dinner party at Cambridge University with James Monroe, then the American minister to Britain, he delivered an eloquent disquisition on the differences between ancient and modern Greek. Monroe loved watching the young American put the Cambridge dons to shame. He remembered it twelve years later when, as president of the United States, he nominated Biddle to the Bank’s governing board and later endorsed him for its presidency.

Biddle proved a fast learner. As the chief executive of the country’s biggest corporation, he applied his considerable brainpower to mastering every aspect of the Bank’s affairs. From the start he wanted the Bank to play a strong role in regulating the nation’s currency. Like Cheves, he regularly redeemed the notes of state banks that ended up in the Bank’s vaults. This had a dual effect: it forced the banks to keep enough coin in their coffers to back their bills and it steadily withdrew their paper from circulation. At the same time, Biddle increased the number of the Bank’s notes, so that his bills gradually supplanted those of the state banks—and, crucially, preserved enough capital to ensure that his notes held their value.

In his first three years, Biddle had more than doubled the Bank’s circulation, and by the late 1820s, his bills made up as much as a quarter of the country’s total. The result was overwhelmingly positive: America’s paper money became the most stable it had been in decades. In fact, the Bank’s notes were so strong that they attracted a broad campaign by counterfeiters eager to cash in. Moneymaking gangs surfaced everywhere from Philadelphia to New Orleans to Matamoros, Mexico. Biddle called on the authorities to intervene, but the maze of different jurisdictions and inept
law enforcement made it difficult to stem the tide of bad bills. By the end of 1827, the situation had gotten so bad that Biddle recalled all $20 and $100 notes to replace them with designs he hoped would be harder to forge.

Although counterfeiters posed a serious threat to the Bank, a graver menace would be the state banks and the array of interests that supported them. They came from prosperous states like New York as well as the wilder frontier regions of the South and West. What united them was their desire for looser credit. They resented Biddle’s supervision of the economy; they wanted their local banks to be able to extend loans and print money without the Bank breathing down their necks. As the nation’s rapid growth created new opportunities for investment and communities everywhere clamored for capital, the hostility toward Philadelphia’s restraining influence grew. The rising entrepreneurial class needed to find a way to pry Biddle’s fingers from the helm. They needed someone who could rally public opinion against the Bank and marshal its many enemies in a coordinated assault.

General Andrew Jackson was the man for the job. Culturally, he and Biddle couldn’t have been more different. Unlike Biddle, Jackson enjoyed none of the benefits of a privileged upbringing. Born to Scotch-Irish immigrants in the backwoods of the Carolinas, he fought hard for his success. He became a national hero for defeating the British at New Orleans during the War of 1812, and his tactical finesse made him a formidable politician. After stints as a frontier lawyer, cotton planter, and senator, he mounted a bid for the presidency. Jackson’s victory in 1828 marked a major realignment in American politics. He was the first president who hadn’t been born in either Massachusetts or Virginia, and he brought a radically new spirit to the White House, defined by the whiskey-soaked individualism of the old Southwest. His admirers hailed him as the “People’s President,” a crusader for the common man against the ruling elite; his adversaries vilified him as “King Mob,” a demagogue of the illiterate rabble. And while he drew support from the lower classes, he also found allies among the
wealthy: southern slaveholders, western entrepreneurs, and many former Federalists.

Jackson’s rise to power reflected the convergence of a number of forces working to upend the old order. As America evolved from a small patrician republic along the eastern seaboard into a boisterous democracy reaching deeper into the continent’s interior, the nation now had a leader who knew the hardships of the West firsthand, a self-made man who could speak di-rectly to the masses in a language they could understand.

Among Jackson’s supporters was John McFarland, who had left the
Carlisle Republican
after Findlay’s defeat and ended up at the
Allegheny Democrat
in Pittsburgh. As editor of the
Democrat
he campaigned for Jackson with typical zeal, at one point even inciting a crowd to burn an effigy of one of the general’s foremost political foes, Henry Clay. McFarland’s advocacy of Jackson was hardly surprising. Jackson was popular among the state’s heavily Scotch-Irish western and mountain counties. And he shared certain traits with another of McFarland’s favorites, David Lewis. The populist outlaw from the folktales and the fake confession exhibited many Jacksonian features: he championed the plight of the -dispossessed and fought the moneyed interests, a story line that played well among Pennsylvanians deeply distrustful of the establishment. Like Jackson, Lewis represented the righteous struggle of people against power, although in both cases, their personal myths masked a much messier reality.

Jackson had campaigned on personality, not policy, and when he arrived in Washington, he brought with him a set of deeply held, often incompatible beliefs shaped by his personal experiences and prejudices. His feelings about finance were complex. On the one hand, he harbored an abiding hatred for all forms of banking and paper money. He believed that notes printed by state banks were not only unconstitutional but dangerous, and blamed them for the Panic of 1819 and the subsequent depression. Jackson wanted precious metals, not paper, to be the
country’s currency. But he also adhered to a winner-take-all individualism that made him reluctant to intervene in the marketplace. He had little sympathy for society’s losers: he had struggled to overcome his humble origins and expected others to do the same. He opposed debt relief and promoted laissez-faire, which he hoped would produce a nation of self-made men like him—an economy free of monopolies, speculators, and government regulation.

Jackson’s tangled financial thinking made it hard to predict how he would behave toward the Bank. Biddle, who voted for Jackson, expected their relationship to be cordial, and at first the president gave no indication that might make him think otherwise. The Bank printed paper money, of course, but it also exercised an important check on the state banks; it encouraged government supervision of the economy, but it also held the tide against the cheap-credit financiers that Jackson hated. Nonetheless, within months of assuming office, the president would come to despise the Bank. He saw it as an antidemocratic monopoly that concentrated power in the hands of the few at the expense of the many, an evil instrument of entrenched wealth.

Among the factors that drove him to this view was the influence of his Kitchen Cabinet, the intimate circle of advisers he consulted alongside his official cabinet. Many of them, like Martin Van Buren, had close ties to the state banks that wanted to liberate themselves from Philadelphia’s control. In making their argument, they appealed to a range of sentiments: the old agrarian distrust of banking, the democratic dislike of monopolies, the defense of states’ rights against federal power, and, perversely, the desire to replace all paper money with precious metals. The hard-money men who fought the Bank hoping to rid America of paper currency—Jackson counted himself among them—would be sorely disappointed; their efforts paved the way for more paper, not less. “I did not join in putting down the Bank of the United States,” said their de facto spokesman, Senator Thomas Hart Benton of Missouri, “to put up a wilderness of local banks.”

The opening act in what came to be called the Bank War occurred in December 1829, when Jackson questioned the institution’s “constitutionality” and “expediency” in his first annual message to Congress. Over the course of the next few years, Jackson moved carefully, sometimes denouncing the Bank harshly, other times sounding conciliatory tones. These maneuvers confused Biddle and left him disorganized and defenseless when the deathblow came. While an expert administrator, he had no talent for politics. Rather than mobilizing the Bank’s supporters in a spirited defense, he kept hoping that Jackson would change his mind, and remained naively open to compromise long after the battle lines had been indelibly drawn. It was when Biddle tried to go on the offensive, however, that he made his fatal mistake. In January 1832, he submitted the Bank’s application for re-charter to Congress. The current charter didn’t expire until 1836, but Biddle, on the advice of anti-Jackson politicians like Henry Clay, believed that forcing the issue on the eve of the presidential election would embarrass the president and improve the Bank’s chances.

The plan backfired. Biddle had unwittingly ignited an all-out war with Jackson’s seasoned political machine, and in the ensuing firestorm, he found himself rhetorically outgunned. The president and his propagandists skillfully spun the battle over the Bank to their benefit. The charter had enough votes in Congress to pass, but on July 10, 1832, Jackson vetoed it and delivered a message that made his case to the American people. “It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes,” he said. Government’s responsibility, in Jackson’s view, was to ensure that everyone competed freely according to his natural abilities without any artificial advantages. By making “the rich richer and the potent more powerful,” the Bank gave its beneficiaries an unfair edge over the “humble members of society—the farmers, mechanics, and laborers.”

Voters embraced Jackson’s message. They didn’t care that the president was wrong—that the Bank, far from enriching a conspiratorial cabal,
had contributed tremendously to the overall health of the nation by stabilizing the currency and curbing bad banking practices. The finer points of financial policy weren’t one of Jackson’s strengths. But he knew how to win an election, and Biddle, by making the Bank a campaign issue, had handed him the perfect political weapon. Jackson elevated the debate over the Bank into a struggle for the soul of America, a stark choice between aristocracy and democracy. He tapped Americans’ class anger toward the country’s elites and offered them an appealing narrative: Jackson the rugged westerner versus Biddle the arrogant easterner. It worked. Four months after vetoing the Bank’s re-charter, Jackson defeated his challenger at the polls, Henry Clay, by a wide margin. Emboldened by the victory, the president moved to finish off the Bank. In the fall of 1833, he began transferring the federal government’s funds from Philadelphia into a handful of state banks whose directors were, almost without exception, staunch Jacksonians.

The day Jackson’s treasury secretary announced the decision to strip the Bank of its government deposits, an incisive editorial appeared in the Philadelphia-based
National Gazette
. The Bank faced “two distinct sets of enemies,” the writer declared, “the gang of counterfeiters” and “the junto of the Kitchen Cabinet.” “The Kitchen Cabinet cost more than the counterfeiters,” he continued, “because, having the whole patronage of the government at their disposal…they have the power to manufacture and circulate their counterfeits more readily than the humbler worthies of the copper-plate.” Branding the president and his advisers moneymakers might seem like just another salvo in the Bank War, but it wasn’t far from the truth. By destroying the Bank, they had done more to inundate the nation with worthless paper than even the most prolific counterfeiting operation. Without Biddle holding the reins, state banks could now print bills without bothering to redeem them. From 1833 to 1836, note issues increased 50 percent in the East, 100 percent in the West, and 130 percent in the South.