Understanding Jackson’s Bank War
Understanding Jackson’s Bank War is critical to our future. He was absolutely correct insofar as following the Jeffersonian view that a National Debt would not be a Blessing as Hamilton proclaimed, but the servitude of the people that would ultimately consume all liberty. In this vain of thinking, Andrew Jackson was correct and in his annual message to Congress in December 1834, President Andrew Jackson reported that the United States would be debt-free as of January 1, 1835. This marked the first and only time that the United States or any other major nation in history had ever been free from debt. Jackson declared:
“Let us commemorate the payment of the public debt as an event that gives us increased power as a nation and reflects luster on our Federal Union.”
Jackson had adhered to the prevailing view of Thomas Jefferson in his battle against Hamilton to create a national debt. Jefferson’s view was that incurring a national debt and passing it on to future generations condemned those generations to involuntary servitude.
There are people who have made up quotes attributed to Jefferson that are totally false. The only real quote of Jefferson regarding banks come from a letter Jefferson wrote to John Taylor in 1816:“And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
Jefferson was concerned with debt, not private banks. The quote commonly circulated to justify the destruction of the Federal Reserve attributed to Jefferson is completely fake: “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered..” Even the terms deflation and inflation did not exist at that point in time and paper currency of the colonial period was issued by the states and the Continental Congress, not private banks.
Jefferson’s views on debt was the critical point that Jackson followed. Debts passed on to children that neither voted for nor approved of them, are a blatant example of taxation without representation in the Jeffersonian view of life. When Jackson first ran for president in 1824, he denounced the debt as a “national curse.” He vowed 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.”
Thomas Jefferson considered excessive debt immoral, and he advocated paying off debts within a generation (i.e., 20 to 40 years at the time). This was the taxation without representation that children must pay for debts they did not create nor benefit from. Andrew Jackson was following in Jefferson’s footsteps as he sought to pay off the national debt during his presidency (1829-1837).
Jackson created countless enemies and became one of the most polarizing presidents in American history. His war on the banks took a two-fold approach. He first needed to eliminate the national debt that he saw as beholding to the bankers. Paying down the debt required cutting government spending and you can imagine the chaos and bad feelings that would set off today. In the course of this objective, Jackson generally opposed bills that allocated taxpayer money for “internal improvements” what we call “pork barrel spending” today. In the 1863 popular story “The Children of the Public”, Edward Everett Hale used the term pork barrel as a homely metaphor for any form of public spending to the citizenry. However, after the American Civil War, the term came to be used in a derogatory sense.
While much of Jackson’s opposition was politically motivated (he vetoed a road construction bill because it would have benefited Kentucky, the home state of hated rival Henry Clay), he did much to cut government spending and make it possible to pay off the national debt.
An increase in government revenue was also required to pay down the national debt. To this end, Jackson enforced the tariff laws that many southern states viewed as excessive and even confiscatory.South Carolina’s refusal to collect federal tariff duties in 1832 outraged Jackson. He proposed to mobilize a federal army and lead it himself into South Carolina to collect the revenue. Ultimately, cooler heads prevailed when South Carolinians agreed to abide by a modified tariff law. Tariff collection was vital in paying down the national debt.
To keep the national debt paid off, Jackson vetoed the re-charter of the Second Bank of the United States, then withdrew federal assets from the Bank and distributed them to state banks. This effectively killed central banking in the U.S. While this was more by politics than principle (Jackson’s supporters operated most state banks receiving federal deposits), it helped veer the country away from the destructive central banking system that had created the boom-and-bust cycles in the economy.
Unfortunately, placing federal deposits into state banks had unintended consequences. The state banks began overextending themselves by granting loans that exceeded the specie (i.e., gold or silver) on hand. Loans not backed by specie led to an overabundance of paper money that caused prices to rise and land sales to boom. To combat this, Jackson persuaded Congress to pass the Specie Circular Act of 1836, which required land purchases to be made in gold or silver specie.
The Specie Circular halted the land boom, which pleased Jackson and supporters of “hard” (i.e., gold or silver) money over “soft” (i.e., paper) money. But it ultimately led to a financial panic when loans were called and borrowers did not have enough specie to cover them. This sparked the Panic of 1837, which occurred almost immediately after Jackson left office.
Andrew Jackson’s policies naturally generated many enemies, political or otherwise. When he killed the Second Bank of the United States, congressional Whigs who supported the Bank excoriated Jackson. As a result, the Whig-controlled Senate censured Jacksonfor assuming power not conferred upon him by the Constitution. This was the first and only time that a president was ever censured by Congress; a more sympathetic Congress removed the censure in 1837.
Jackson was also the first presidential victim of an assassination attempt. In January 1835, a disgruntled house painter fired on Jackson with two dueling pistols in the Capitol Rotunda. The pistols misfired, and Jackson attacked the man with his cane until aides restrained him. Blaming Jackson for his inability to find a job, the assailant later claimed that if Jackson was dead, “money would be more plenty.” The man was institutionalized as insane and never tried for attempting to assassinate the president.
Two years after paying off the national debt, the Panic of 1837 struck. This was the worst economic crisis in American history, spawning a six-year depression. The national debt increased tenfold within the depression’s first year, as revenue fell by more than half. The U.S. has not been free from debt since.
Jackson had attempted to pursue the founders’ vision of creating a nation free from debt or centralized finance which would give the people more control of the fruits of their labor. However Jackson’s conversion to hard money and decentralized banking ended the false boom and led to the painful economic correction in the form of the Panic of 1837. This prompted many to blame Jackson’s policies for the depression and turn back to central banking and easy credit, thus ensuring that America would join the rest of the major countries of the world in carrying a hefty national debt.
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Sources
- DiLorenzo, Thomas J., Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution–and What It Means for Americans Today (New York: Crown Publishing Group, 2008)
- Remini, Robert V., Andrew Jackson (New York: HarperCollins, 1966)
- Schweikart, Larry and Allen, Michael, A Patriot’s History of the United States (New York: Penguin Books, 2004)
Income Tax Has Been Highly Destructive to Society
QUESTION: Mr. Armstrong;
I understand the income tax was introduced in 1913 with the creation of the Federal Reserve. Is it possible for a nation to survive without an income tax?
HG
ANSWER: Income taxes are a product of the Marxist period. This is when class warfare became dominant. People actually argued that it was unjust that someone else had more money than another and expect government to take it from them. The introduction of the Income Tax was expressly stated that it would ONLY apply to the rich. This is no different from seeing someone with a Rolex watch and going with a gun to rob him yelling it’s not fair he has someone you do not. This is the coveting of your neighbor’s goods.
There are some who begrudge others having anything they do not and attribute everything to some sort of fairness. This was the dominant theory that took hold in the world especially after the Panic of 1893. This trend has led to the downfall of Western Society as it it to those who grabbed all property in the Communist world.
Nevertheless, this displaced the family structure and altered society tremendously. Children no longer saved to take care of their parents. That became the duty of the state – not their obligation. So as the state now fails from fiscal mismanagement, we will see the true cost of Marxism as did those behind the Iron Curtain. The difference today, they have a health distrust about government and retained the family structure. I Europe and America, we lost much of those values as a whole.
The fact that the US National Debt was paid off on January 1st, 1835 without an income tax proved that Marxism and the income tax is not merely unnecessary, it has been highly destructive.
Extinction of the National Debt
On December 26th, 1834, the Treasury Report, announced the astonishing important event in economic history – the National Debt Of the United States, which at one time amounted to more than $127,00,000, would be totally Extinguished on the first of next month (January 1, 1835). This fact demonstrated that income taxes were not required. During the course of 19 years, by means of only indirect taxation, the $127 million national debt was paid off.
| 1st of Jan | President | |||
| 1784 | Washington | pop was 3,000,000 | ||
| 1791 | $75,463,476.52 | |||
| 1792 | 77,227,924.66 | |||
| 1793 | 80,352,634.04 | |||
| 1794 | 78,427,404.77 | |||
| 1795 | 80,747,587.39 | |||
| 1796 | 83,762,172.07 | |||
| 1797 | 82,064,479.33 | |||
| 1798 | 79,228,529.42 | John Adams | ||
| 1799 | 78,408,669.77 | |||
| 1800 | 82,976,294.35 | |||
| 1801 | 83,038,050.80 | |||
| 1802 | 80,712,632.25 | Jefferson | ||
| 1803 | 77,054,686.30 | Louisiana Purchase | ||
| 1804 | 86,427,120.88 | |||
| 1805 | 82,312,150.50 | |||
| 1806 | 75,623,270.66 | |||
| 1807 | 69,218,398.64 | |||
| 1808 | 65,196,317.97 | |||
| 1810 | 53,173,217.52 | Madison | ||
| 1811 | 48,605,507.76 | National Road Begun | ||
| 1812 | 45,209,337.90 | War of 1812 Started | ||
| 1813 | 55,962,827.57 | |||
| 1814 | 81,487,346.52 | War of 1812 Ended | ||
| 1815 | 99,833,660.15 | |||
| 1816 | 127,334,933.74 | The year with no Summer | ||
| 1817 | 123,491,965.16 | |||
| 1818 | 104,466,633.83 | Monroe | ||
| 1819 | 95,529,648.28 | Pop was 9,000,000 | ||
| 1820 | 91,025,500.15 | Missouri & Maine & 1st steam engine | ||
| 1821 | 89,957,127.66 | |||
| 1822 | 93,516,675.98 | |||
| 1823 | 90,875,877.22 | Monroe Doctrine | ||
| 1824 | 90,259,777.77 | |||
| 1825 | 83,788,432.71 | Erie Canal | ||
| 1826 | 81,054,059.99 | John Q. Adams | ||
| 1827 | 73,957,357.20 | |||
| 1828 | 67,475,043.87 | |||
| 1829 | 58,424,413.67 | |||
| 1830 | 48,580,534.22 | Andrew Jackson | ||
| 1831 | 39,082,461.88 | |||
| 1832 | 24,282,879.24 | SC threaten secession over tariff | ||
| 1833 | 7,001,698.83 | |||
| 1834 | 4,722,260.29 | reaper patent | ||
| 1835 | 0,000,000.00 |
San Francisco Earthquake of 1906 & Regional Capital Flows
COMMENT: Hi Marty,
I quite enjoy your writing. My understanding regarding the panic of ’07 is that it was at least partly the result of earthquake and San Francisco fire of 1906.
Really looking forward to your book(s), especially the rewrite of “Greatest Bull market” as I believe you will be pointing out the sorry history of how we got into this mess in the late 19th century.
Also, Keep up the “Take No Prisoners” approach with the opposition. The Stakes are too high.
Eric
REPLY: Yes, the San Francisco Earthquake resulted in capital flowing from the East to the West Coast. Insurance companies also in Germany were hit and they too had to pay claims in California. This is why they set up the various branches of the Fed to manage this internal capital flow problem between regions.
The Copper Manipulation was the straw the broke the camel’s back. It was the final event that set off the Panic of 1907, however, there was already a cash drain from East to West, which made the NY banks vulnerable.