Another Twist on the Jacksonian Bank War – Part 1

©1997 by Gerry Rough <politico8@maplenet.net>

This is the first of a three-part series on the claims of the conspiracy
theorists regarding the second Bank of the United States. This page was
originally posted as the first of a four-part series. Parts one and two
will examine the general arguments on this issue. Part three will examine
Andrew Jackson’s veto message on the recharter bill, often cited by the
conspiracy theorists.

With the amount of historical controversy surrounding the second
Bank of the United States, it is not surprising to find the conspiracy
theorists citing this issue in their zeal to prove that there is a global
conspiracy: Controversial issues are the perfect place to find new converts
to your cause. The downside to all of this, of course, is that your audience
must be ignorant of the issue in order to be so easily swayed.

The history of the second Bank of the United States continues to be
a controversial issue. Among economic historians the epic struggle continues
unabated. Margaret Myers in her text, A Financial History of the United
States
, noted the “Bank War” has never ended. Myers writes:

      In one sense the “Bank War” has never ended. Historians have continued

 

      to analyze the personalities of Biddle and Jackson and their supporters,

 

      the merits of bank policies, and the blame for the troubles which followed

 

      its demise. New material keeps turning up to throw new light on one aspect

 

      of the case or another. Few events in the financial history of the United

 

    States have been discussed at such length with such passion. [1]

So, it comes as no surprise to find the conspiracy theorists adding their
twist to the issue. But just what are some of the claims of the conspiracy
theorists concerning the second Bank of the United States, and how do they
compare with the real record?

As background, the second Bank of the United States was chartered by
an act of Congress in 1816 as a result of the mess that was created by
the demise of the first Bank of the United States in 1811. The charter
was to last twenty years. Congress would then have to vote to renew the
charter. Its beginning capital was $35 million dollars, with the government
owning 20% of the original stock.

To start things off, G. Edward Griffin, author of The Creature from
Jekyll Island
, makes the following error on page 346:

      The Bank, as the largest creditor [to the state banks], had two alternatives:

 

      it could write off its debts which of course would wipe out the stockholder”s

 

      equity and result in bankruptcy, or it could force the state banks to meet

 

      their obligations which would mean wholesale bankruptcy among the state

 

      banks. There was no doubt about the choice….The pressure placed upon

 

      state banks deflated the economy drastically, and as the money supply wilted,

 

    the economy sank into severe depression. [2]

There are two errors that stand out in this citation. First, the citation
is false. Griffin falsely cites Herman E. Krooss, Documentary history
of Banking and Currency in the United States
, volume III, pp. 190,
191. Volume III starts on page 1617, and pages 190 and 191 have
nothing to do with the subject. Please see the update to this.
Even worse than falsely citing his source,
the citation destroys his own thesis. Griffin’s thesis throughout is that
all banks should honor all legal obligations and those that cannot do so
should be forced out of business immediately; just as any other business
should operate. This sounds admirable indeed, except that when Griffin
cites the above, the context indicates that the Bank is doing exactly what
Griffin wants: Forcing the fraudulent operators out of business. Griffin
fails to see the obvious contradiction to his own thesis, then writes the
following:

      But, when a central bank is allowed to protect the fraudulent operators

 

      and to force all banks to function the same, the forces of competition

 

    can no longer dampen the effect [of panics and depressions]. [3]

Protecting fraudulent operators? By forcing them out of business?!

So much for rational thought. This argument is really an expounding of
an earlier argument on the page just prior to the above. Griffin writes:

      Congress had neither the wisdom nor the courage to let the free market

 

      clean up the mess that remained after the demise of the first bank of the

 

      U.S. If it had, the fraud soon would have become understood by the public,

 

      the dishonest banks would have folded, the losses would have been taken,

 

      and the suffering would have ended, perhaps forever. Instead, Congress

 

      moved to protect the banks, to organize the fraud, and to perpetuate the

 

      losses. All of this was accomplished in 1816 when a twenty-year charter

 

    was given to the Second Bank of the United States. [4]

Organizing a blatant fraud and perpetuating the losses and suffering of
the people leaves only one conclusion; deliberate conspiracy. The
standard historical work on the second Bank of the United States is R.C.H.
Catterall, The Second Bank of the United States. Catterall’s statement
leaves little room for Griffin’s apparent conspiratorial gullibility:

      Thus, after seven attempts, after more than two years of almost constant

 

      endeavor, the bank was established, in its final form resembling the old

 

      Bank of the United States and that project which Madison had vetoed a little

 

    more than a year before. [5]

Page 346 finds the following in Griffin’s text:

      Competition between the national Bank and the state banks during this

 

      period had been moved from the open field of the free market to the closed

 

      arena of politics. Free-market competition had been replaced by government

 

      favoritism in the form of charters which granted the right of monopoly.

 

    [6]

It is difficult to imagine a statement more patently incorrect. The granting
of bank charters by state governments was unchanged since the first state
charters were granted in the 1780″s. The assertion that the free-market
had changed to favoritism is absurd. The most elementary of research would
easily discredit the argument. What Griffin is attempting to do here is
confuse the issue. In order to get a state legislature to grant a charter
for a new state bank, it was to your advantage to bribe your representative.
The bribe only meant that the representative would introduce the bill to
grant a charter into the next legislative session; it did not guarantee
a charter. All of this assumes, of course, that all Representatives were
crooks; a charge neither documented, nor worthy of comment. There are many
instances where the bill to charter was never passed or vetoed by the Governor
of that state. W.H. brown cites the example of the State of Pennsylvania.
[7] This is hardly an issue of conspiracy, Griffin is obviously distorting
the facts for his audience.

Also in the context of the above, the granting of a charter for a state
bank by the legislature of that state meant that it was a grant of monopoly.
This is again a false assertion. They were many times de facto monopolies,
since they were the first banks to start business within their respective
districts, but they were never granted a real monopoly, i.e. a legal monopoly.
To my knowledge, there were no monopolies granted by a state legislature
to a single state bank. This statement would apply only to single banks.
Knox cites the one exception to this. He cites the Baltimore monopoly of
1812-1835. But even this granting of a true monopoly was temporary and
it applied to all of the banks then in existence within the city. Knox
writes:

      Secondly, no new banks had been established in Baltimore since 1812;

 

      the monopoly of banking in that city had been conferred on the banks then

 

      existing in return for their agreement to build a road from Baltimore to

 

    Cumberland. This monopoly expired in 1835. [8]

Griffin’s statement then, is grossly incorrect. On page 343, Griffin makes
another obvious error. Griffin writes:

      It [the Bank] had promised to continue the tradition of moderating

 

      the other banks by refusing to accept any of their notes unless they were

 

      redeemable in specie on demand. But when the other banks returned the gesture

 

      and required that the new Bank also pay out specie on their demand it frequently

 

    lost its resolve. [9]

Catterall again sets the record straight:

      Thus the Bank of the United States, even when it attempted to press

 

      its claims, found insuperable obstacles to collecting in coin. Hence the

 

      state banks enjoyed a virtual immunity from the payment of the vast majority

 

      of their notes. In striking contrast to this favor shown the state banks

 

      was the attitude toward the national bank. Banks, brokers, and traders

 

      made a business of extracting coin from its vaults, an operation facilitated

 

    by its faulty management in permitting excessive discounts. [10]

So, in fact, the exact opposite is true from Griffin’s statement.
It was the state banks that refused to redeem their notes in specie.
Add to this the fact that the Bank was so reliable in its specie redemption
that the state banks and others “made a business of extracting coin
from its vaults.
” So transparent is Griffin’s deliberate fraud
by making such a statement, the continuation of the above even exclamates
the point:

      Brokers and bankers constantly bought up its [the Bank”s] notes and

 

      presented them for redemption, drew specie, sold it at an advance, bought

 

      bank notes, presented them, drew specie, sold it, and so on

ad infinitum.

    [11]

All of this, mind you, on the very page that Griffin himself cites. Worse
yet, it was the very next sentence!!

Before we encounter Griffin’s next major error, let’s see the entire
citation as a whole, then we”ll take it apart piece by piece. It’s a good
example of the nature of conspiracy theory and how it is propagated to
an audience. By deliberately confusing or lying about the facts, an uneducated
audience is easily duped into accepting as fact that which is completely
untrue or deliberately distorted in order to prove the theory. Griffin
writes:

      In every respect the new bank was a carbon copy of the old, with one

 

      minor exception. Congress unashamedly extracted from the private investors

 

      what amounted to nothing less than a bribe in the form of $1.5 million

 

      “in consideration of the exclusive privileges and benefits conferred by

 

      this act.” The bankers were glad to pay the fee, not only because it was

 

      a modest price for such a profitable enterprise, but also because, as before,

 

      they received an immediate government deposit of one-fifth the total capitalization

 

      which then was used as the base for manufacturing much of the remaining

 

      startup capital. The charter required the Bank to raise a minimum of $7

 

      million in specie, but even in its second year of operation, its specie

 

      never rose above $2.5 million. Once again, the monetary and political scientists

 

      had carved out their profitable niches, and the gullible taxpayer, his

 

      head filled with sweet visions of “banking reform,” was left to pick up

 

    the tab. [12]

Now let’s dissect the above. “In every respect the new bank was a carbon
copy of the old, with one minor exception.” False. There were many differences
between the first Bank of the United States and the second Bank of the
United States. While it is true that most of the changes were minor, Griffin”s
charge of “one minor exception,” is grossly incorrect. The changes included
a larger capital (three and one-half times that of the first), a par value
of the shares to be $100 instead of $400 in order to encourage wider ownership,
and the government was to appoint five of the twenty-five directors, whereas
the first bank was to have the twenty-five directors chosen solely by the
stockholders. “Congress unashamedly extracted from the private investors
what amounted to nothing less than a bribe in the form of $1.5 million
“in consideration of the exclusive privileges and benefits conferred by
this act.” False again. It is impossible to “extract” a bribe. A bribe
is offered by the one to whom services will be rendered in exchange for
the bribe. A fee is extracted by the one offering the service. Here again,
Griffin is deliberately redefining terms to distort the issue for his audience.
If it were a bribe, it would have been offered by the bankers, not

extracted by Congress. “The bankers were glad to pay the fee…”
In complete contradiction to his prior statement, Griffin now gets his
definitions correct. “As before, they received an immediate government
deposit of one-fifth the total capitalization…” Completely false. This
was not a government deposit, this stock of specie came from the sale of
the outstanding stock to the original stockholders. The government had
nothing to do with this in any way. This specie stock was to be used by
the bank as the start-up capital. “…Which then was used as the base for
manufacturing much of the remaining startup capital.” Deliberately falsified.
The startup capital was raised by the Bank, though not according to its
charter, as we will see shortly. Griffin must have known the complete falsity
of his statement; there are no known historical records of the Bank’s initial
capitalization being used as a fractional reserve base to manufacture a
shortfall of funds. Period. …”The charter required the Bank to raise
a minimum of $7 million in specie…” True enough. This specie was to come
from the original stockholders as payment for their stock holdings. This
was the start-up capital to be raised by the Bank. “…But even in its
second year of operation, its specie never rose above $2.5 million.” False
again. To this fact he cites Rothbard, p. 203. The problem with Griffin”s
argument here is that Rothbard is not talking about start-up capital; he
is talking about operating capital. Rothbard writes:

      From its inception, the Second BUS launched a massive inflation of

 

      money and credit. Lax about insisting on the required payments of its capital

 

      in specie, the Bank failed to raise the $7 million legally required to

 

      be subscribed in specie. During 1817 and 1818, its specie never rose above

 

      $2.5 million and at the peak of its initial expansion, BUS specie was $21.8

 

      million. Thus, in a scant year and a half of operation, The BUS added a

 

      net of $19.2 million to the money supply.

1

    [13]

On the above point, Griffin’s statement is obviously false. On the account
of the Bank failing to raise the required specie, both Griffin and Rothbard
are confused on their facts. The start-up capital was raised by the Bank,
but not by selling the stock to private investors, as the charter had required.
The Bank’s first president, William Jones, eventually decided that the
only way to raise the required specie was to import it from overseas. The
plan worked, but it cost the Bank over $500,000.2 …”Once
again, the monetary and political scientists had carved out their profitable
niches…” Griffin has now resorted to open fraud. He is accusing a certain
unnamed group of conspirators of stealing or embezzling the difference
between the $7 million start-up capital and the $2.5 million operating
capital. Now let’s think about this for a moment. If the specie never rose
above $2.5 million, as stated, there was no way to embezzle the remaining
$4.5 million from the bank. Further, Griffin cites no historical records
to back up his claim that the specie difference ever reached the hands
of the Bank or anyone else. At this juncture, Griffin may decide to use
the argument that the Bank obtained the needed funds by way of the hidden
tax of inflation (a point not lost in his writings by the way), since governments
do, in fact, profit from inflation. Anyone who attempts to make the argument
would be foolish indeed, since the start-up capital requirement was for
specie, a fixed medium of exchange. Lest my erstwhile detractors howl foul,
all texts written on the issue of economic history routinely cite figures
to bolster their respective arguments. The citation from Rothbard is a
good example. If Griffin really wanted to make a point about conspiracy
here (or anywhere else for that matter), it would be very easy to do so.
He could easily cite the figures to prove his point, then blast away to
his dear heart’s content. Instead, neither he nor any other conspiracy
writers cite the needed historical documentation. The cited figures that
are given are invariably taken completely out of context, suffice to say
that Griffin’s charge is wholly undocumented and blatantly fraudulent.
“…And the gullible taxpayer, his head filled with sweet visions of “banking
reform,” was left to pick up the tab.” Again, Griffin has resorted to open
fraud to make his conspiratorial point. There are no historical records
that show a connection between the business of the Bank and raising taxes
or any other revenue to make up any losses that the Bank had incurred,
nor were any other government revenues used either. This point would be
even easier to make for the conspiracy theorists. Griffin or any other
conspiracy writer could easily cite the law that was passed by Congress
and signed by the President. No law ever existed, of course, and the lack
of any documentation on the part of Griffin does indeed speak gigabytes.

Welcome, again, to the fascinating world of the conspiracy theorists.
In the short span of one paragraph, Griffin has succeeded in making multiple
false statements, deliberate distortions, and openly fraudulent historical
errors. All of this, mind you, in 5 sentences and a total of 164 words.
In order to set the record straight, it took 5 paragraphs, 71 sentences,
1287 words, one quoted citation and two footnotes, to say nothing of the
time involved in order to refute the ridiculous charges. That,
folks, is why the conspiracy theorists can say what they want without fear
of serious scrutiny from academia or anyone else: refuting stupidity is
an incredibly difficult task.

It is appropriate here to make a short digression to give some background
to President Jackson’s opinion of banks. It should be remembered that President
Jackson hated not just banks, but all banks. His hatred of banks
naturally draws the anti-Federal Reserve conspiracy theorists like moths
to the fire. George Rogers Taylor, in his classic text, Jackson versus
Biddle: The Struggle Over the Second Bank of the United States
puts
Jackson’s perspective this way:

      “Every one who knows me,” as he told Polk in 1833, “does know, that

 

    I have been always opposed to the U. States Bank, nay all banks”

Taylor, at the bottom of the same page, has an interesting footnote to
the above that deserves attention here.

      Jackson to Polk, December 23, 1833, Jackson, Correspondence, V, 236.

 

      Jackson told Nicholas Biddle late in 1829, “I do not dislike your Bank

 

      any more than all banks.” Bassett, Jackson, 599. Cf. Ingersol to Biddle,

 

      February 2, 1832: “General Jackson’s antipathy is not to the Bank of the

 

      United States in particular, but to all banks whatever. He considers all

 

      the State Banks unconstitutional and impolitic and thinks that there should

 

      be no currency but coin.” R.C.H. Catterall, Second Bank of the United States,

 

      185 n. All serious students of the Bank War agree that Jackson’s hostility

 

      to the Bank was long standing and based on principle, not the result of

 

      a burst of temper over the conduct of a branch at Portsmouth, New Hampshire,

 

    or elsewhere. [15]

President Jackson’s fear of banks was far more deeply rooted than just
the Bank of the United States. So much so that his statements were transparent
both to his enemies and to friends alike. Catterall’s text does mention
that the Bank’s President, Nicholas Biddle, was under the temporary opinion
that the President could be persuaded to sign the recharter bill, but President
Jackson was unwavering in his hatred of banks. Catterall’s text also cites
a letter from President Jackson to Nicholas Biddle on the origins of Jackson”s
opinion of banks and banking practice:

      I think it right to be perfectly frank with you. I do not think that

 

      the power of Congress extends to charter a Bank ought of the ten mile square

 

      [Washington, DC]. I do not dislike your bank any more than all banks. But

 

      ever since I read the history of the South Sea bubble I have been afraid

 

    of banks. [16]

Catterall continues, concluding this of Jackson’s hatred of banks:

      After this naïve and delightfully Jacksonian reason for fearing

 

      all banks, after this frank confession of constitutional scruples, no one

 

      need henceforth seek for the motives or the origin of Jackson’s opposition.

 

      He fails to tell Biddle just when he had read the history of the South

 

      Sea bubble, but whenever it happened, it fixed him against banks. Let it

 

      be noted, too, that his dislike was for banks in general, and not for the

 

    Bank of the United States in particular. [17]

So, Andrew Jackson’s hatred extended to all banks of any kind. This in
itself is a serious blow to the case of the conspiracy theorists. The premise
of the conspiracy theorists case against the second Bank of the United
States is that the Bank was part of the conspiracy to bring the monetary
system of the United States into the orbit of the international bankers.
But since President Jackson’s antipathy extends to all banks, the argument
rings hollow indeed. President Jackson’s antipathy to the Bank was because
it was a bank, not because it was part of some ridiculous conspiracy.

As we have seen, the conspiracy theorists have deliberately falsified
much of the data they claim to be “proof” for the existence of their New
World Order theory. But our journey through the maze of conspiracy theory
on this issue is not finished. Part two of this three-part series will
examine more of the general arguments surrounding the second Bank of the
United States.

Footnotes
1 Rothbard’s point with all of this is that the Bank’s early
operations were highly inflationary. The $7 million that the bank failed
to raise did not help matters either. The student of economic history will
understand these two points in Rothbard’s interpretation as the widely
accepted viewpoint. Unfortunately, Rothbard has been hasty in his presentation.
Rothbard was hasty, Griffin was confused, and I ended up with a footnote.

2 Jones thought that there was plenty of specie in the country,
but what was needed was a good showing by the Bank to bring it out of hiding.
Events proved otherwise. The first plan was to discount the Bank’s stock
as collateral security, later characterized by the Spencer Committee as
“an operation of more potency in creating specie, than was ever subscribed
to the fabled finger of Midas.” [14]

References
1) Margaret G. Myers, A Financial History Of The United States

(New York: Columbia University Press, 1970) 92

2) G. Edward Griffin, The Creature from Jekyll Island (Appleton:
American Opinion Publishing, Inc., 1995) 346

3) Griffin, p. 345

4) Griffin, p. 342

5) Ralph C.H. Catterall, The Second Bank of the United States
(Chicago: The University of Chicago Press, 1903) 21

6) Griffin, p. 346

7) W. H. Brown, The Story of a Bank (Boston: Richard G. Badger;
The Gorham Press, 1912) 79

8) John Jay Knox, A History of Banking in the United States

(New York: Bradford Rhodes & Company, 1903) 496

9) Griffin, p. 343

10) Catterall, p. 36

11) Catterall, p. 36

12) Griffin, p. 342

13) Murray N. Rothbard, The Mystery of Banking (New York: Richardson & Snyder, 1983) 203

14) Walter Buckingham Smith, Economic Aspects of the Second Bank
of the United States

(Cambridge: Harvard University Press, 1953) 100

15) George Rogers Taylor, Jackson Versus Biddle: The Struggle over
the Second Bank of the United States
(Boston: D.C. Heath and Co., 1949) 74
16) Jackson to Biddle, Nov. 1829, as cited by Catterall, p. 184

17) Catterall, p. 184-185

Additional sources
J.A. Wilburn, Biddle’s Bank: the crucial Years (New York: Columbia
University Press, 1967)

R.V. Remini, The Life of Andrew Jackson (New York: Penguin Books,
1988)

J.M. McFaul, The Politics of Jacksonian Finance (Ithaca: Cornell
University Press, 1972)

C.G. Bowers, The Party Battles of the Jacksonian Period (Boston:
Houghton Mifflin Company, 1928)
B. Hammond, Banks and Politics in America: From the Revolution to
the Civil War
Princeton, NJ: Princeton University Press, 1957)

R.W. Hidy, The House of Baring in American Trade and Finance: English
Merchant Bankers at Work 1763-1861
(Cambridge: Harvard University Press,
1949)

M. St. Clair Clarke and D.A. Hall, Legislative and Documentary History
of the Bank of the United States
(Washington: Gales & Seaton, 1832;
reprinted August M. Kelley, Publishers, 1967)

Robert Sobel, Panic on Wall Street: A History of America’s Financial
Disasters
( London: The Macmillan Company, 1969)

D.R. Dewey, Financial History of the United States ( New York:
Longmans, Green, and Co., 1903)
A. Barton Hepburn, A History of Currency in the United States (New
York: The Macmillan Co., 1903; reprinted, August M. Kelly Publishers, 1967)

H. E. Krooss, editor, Documentary History of Banking and Currency
in the United States
(New York: Chelsea House, 1969. Vol. I, II)

D.B. Cole, The Presidency of Andrew Jackson (Kansas City: University
Press of Kansas, 1993)

Richard Roberts and David Kynaston, ed., The Bank of England: Money,
Power and Influence 1694-1994
(Oxford: Clarendon Press, 1995)

W.M. Gouge, A Short History of Paper Money and Banking in the United
States
( Philadelphia: T.W. Ustick, 1833; reprinted August M Kelley,
1968)

J. R. Sharp, The Jacksonians Versus the Banks (New York: Columbia
University Press, 1970)
J.T. Holdsworth and D.R. Dewey, The First and Second Banks of the
United States
(Washington, DC: Government Printing Office, National
Monetary Commission, vol. IV, 1910)

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