A Republic No More. Jay Cost

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СКАЧАТЬ from powerful men in society. Perhaps the most notorious, but certainly not the only, legislator on the take was Daniel Webster, the famous orator who for half a century defended American nationalism with an unmatched eloquence. Webster, nevertheless, was an avid speculator with a taste for the finer things in life. He was persistently hard-pressed for money and was more than happy to use his influence for personal gain, as well as tip his friends and family off about public policy that could prove profitable.²⁴ He was not alone. Clay was on the payroll of the Second Bank and Missouri senator Thomas Hart Benton was a legal representative for John Jacob Astor.²⁵ Even presidents were on the hook: Monroe borrowed a tidy sum from Astor during the War of 1812 and was persistently unable to pay back his wealthy benefactor. No matter! Astor eventually leaned on President Monroe to rescind an order prohibiting foreigners from engaging in the fur trade, something that greatly aided his American Fur Company.²⁶

      Corruption was rampant in the executive departments as well, especially the Department of War and the all-important Treasury Department, which had oversight over the Second Bank and its state satellites.²⁷ The Second Bank in particular was a cesspool of corruption in its early years. Modeled after its predecessor, most of its directors were picked by private shareholders while the government named a minority.²⁸ The Madison administration chose five solid Republicans for the board and worked behind the scenes to have a Republican crony selected as president.²⁹ That duty fell to William Jones, former secretary of the navy and interim secretary of the treasury. In the latter position, he had proven himself wholly incapable of his duties, but in the former had demonstrated a keen understanding of how the political game worked, doling out patronage to friends, family, and political allies with great skill.³⁰ That, plus his Republican bona fides as well as his residence in Philadelphia (where the Second Bank was headquartered) made him a natural choice. His ignorance of public finance was not a concern.

      The administration of Jones, a “corrupt and venal man” as historian Robert Remini describes him, stands in stark contrast to that of Hamilton during his tenure at the Treasury Department.³¹ In the 1790s, Republicans cried bloody murder about the potentially devastating corruption that could emanate from the Bank, but while venality did spring forth from it, the capable management of Hamilton meant that its broader effects were generally limited. This went a long way to proving the viability of Hamilton’s assumption that a natural aristocracy could handle a large governmental operation, managing and controlling corruption with an eye toward the public good. But what happens when a party functionary is at the helm, rather than a natural aristocrat? The public found out in the first few years of the Second Bank’s operation, as Jones was totally out of his depth, and on the take.

      For starters, he and the Second Bank’s directors allowed a clique of stockjobbers to take control of the Baltimore branch, which was robbed of more than $1 million before the truth came out.³² The president of the branch, one of the directors, and the cashier formed a company intent on cornering the market on bank stock with an eye to inflating its price.³³ They purchased something on the order of $4.5 million worth of bank stock, financed in part by loans from the Second Bank itself: $1.7 million from the Baltimore branch and $2 million from the Philadelphia headquarters. They also farmed out nominal ownership of the shares to thousands of dummy investors to get around rules limiting how many votes any single investor could have. Ultimately, as few as fifteen people in Baltimore owned three-fourths of the stock there.³⁴ Jones noticed none of this, nor any of the stockjobbing going on all across the country; indeed, he even accepted an $18,000 gift from officers at the Second Bank, which had been made on rampant speculation.³⁵

      Worse than this was Jones’s gross mismanagement of the nation’s economy. In theory, the Second Bank’s monopoly over federal deposits gave it control over the state banks, and therefore capacity to regulate credit and even the broader business cycle. In practice, nominating a political hack whose tenure at the Treasury Department was a model of incompetence meant that the Second Bank was part of the problem in the postwar economy.

      Following the War of 1812, American exports boomed to meet a growing demand for staples in Europe. Banks all across the country lent generously, and thus a credit-fueled bubble quickly followed. It finally burst in late 1818 when the price of cotton plummeted on the Liverpool exchange, and the forthcoming Panic of 1819 plunged the country into a nasty recession.³⁶ The Second Bank was not the primary culprit for the panic, but it did shoulder some of the burden. If Jones had been an able and sensible manager of the national credit, he could have foreseen what was coming and acted in advance to tighten credit and gain control over the irresponsible practices of the state banks. Instead, he did precisely the opposite, fueling the credit bubble. In August 1817, he waived the requirement that the second installment of payments for Second Bank stock be remitted in specie, or hard coin, enabling investors to retain their shares with very little money down.³⁷ He also did not mandate that the branch banks have fixed capital, meaning that there was no rational credit plan emanating from Philadelphia. Bank branches in the South and West, managed by men whose ignorance of finance matched Jones’s, happily authorized loans that could never practically be paid back.³⁸ By July 1818, the Second Bank’s demand liabilities were $22.4 million compared to just $2.4 million worth of specie in its vaults, double the legal limit.³⁹

      At that point, the game was up and the Second Bank initiated a painful contraction of credit that contributed to a depression in prices. Exports, valued at $83 million in 1818, fell to $54.5 million in 1821; import prices fell from $120 million to $54.5 million.⁴⁰ As historian George Dangerfield notes, “Trade stagnated; the price of staples swooned downwards; real property depreciated and its rents or profits vanished; merchants, even the most reputable, were ruined; and in the larger cities, unemployment spread like a plague.”⁴¹

      Under enormous political pressure, Jones resigned in 1819, and his successor—Langdon Cheves of South Carolina—continued the contraction. By 1820, the Second Bank notes in circulation amounted to $3.5 million, down from $8 million in 1818. Cheves restored the Second Bank’s financial soundness, but the damage to the broader economy was great. According to contemporary economist (and hard money advocate) William Gouge, “The bank was saved, and the people were ruined.”⁴² Modern economic research has confirmed this analysis, concluding that Cheves’s contraction was more severe than necessary. By April 1819, the Bank was fundamentally sound, but the contraction continued until Cheves was pushed out in 1823, to be replaced by Biddle of Pennsylvania.

      Biddle comes across the pages of history much as Hamilton does: cosmopolitan, intelligent, broad-minded, ahead of his time, and exceedingly arrogant. Both men believed in a natural aristocracy and felt as though they were rightful members of it, and both were, more or less, correct. Unlike his predecessors, Biddle understood the beneficial role the Second Bank could play in the national economy, and he set about realizing that goal. To his everlasting credit, he was quite successful, taking the concept of a central bank farther than had been accepted even in England by that point.⁴³ From the time Biddle took control of the Second Bank in 1823 until Jackson’s reelection in 1832, it expanded its loans many times over, especially in the South and West.⁴⁴ Even still, it managed successfully to restrain the state banks and even get in front of an economic panic that was brewing in England by 1825.⁴⁵ Little wonder that, by the time of the Second Bank’s request for recharter in 1832, it had achieved broad popularity. Gallatin, by that point the éminence grise of Republican finance, gave it his blessing.⁴⁶

      Yet Biddle was not above the political fray, even though he personally claimed no interest in partisan gamesmanship. The fact is that Biddle had a lot of friends in high places, in no small part because he purchased them. The case of Webster has been noted above, as were Calhoun and Clay, all of whom Biddle courted assiduously. Various other members of Congress were also lubricated with generous loan terms as well as the privilege of receiving advances on their salaries.⁴⁷ Newspapermen were also eligible for loans that were not strictly above board.⁴⁸ Additionally, the primary responsibility of Biddle was to the Second Bank itself, despite his pretensions СКАЧАТЬ