What Hath God Wrought (74 page)

Despite this populist, anti-Bank rhetoric, Jackson did not attack capitalism in general. Nor did he hope for America to return to some mythic Arcadia of subsistence farming. Instead he praised America’s “rich and flourishing commerce” and rejoiced at her progress “in numbers, in wealth, in knowledge, and all the useful arts which contribute to the comforts and convenience of man.” Jackson and the Democratic Party valued laissez-faire as a guarantee that economic competition would take place fairly, without the intervention of government favoritism. In his closing, Jackson recommended building up coastal defenses and the navy, for “we shall more certainly preserve peace when it is well understood that we are prepared for war.”
⁴³

For the rest of the antebellum era, the Democratic Party retained the philosophy Jackson expressed, especially his willingness to nurture the Union by sheltering slavery from criticism. Van Buren divorced the government from banks altogether, with Jackson’s hearty approval. Faith in the people’s rustic virtue continued to coexist with pride in their economic development. Since the Democrats suspected that special interests would inevitably dominate government, they often protested that strong government meant favoritism to the few at the expense of the many. Yet in practice they showed no hesitation in using the power of government to promote interests they favored, particularly the perpetuation and extension of slavery. Popular sovereignty remained a favorite Democratic slogan, while Jackson’s endorsement of westward expansion and a strong defense establishment would be magnified into imperialism and conquest.

IV

Moving into the White House, Martin Van Buren realized a goal he had long dreamed of and for which he had schemed ceaselessly. His daughter-in-law, the beautiful, aristocratic southerner Angelica Singleton Van Buren, served as official hostess for the long-widowed president, winning from even a critical French diplomat the admission that she would qualify “in any country” as a woman of “graceful and distinguished manners.”
⁴⁴
But events quickly frustrated Van Buren’s inclination to rest on his laurels and enjoy the presidency as a reward. Though he boasted in his March inaugural address of prosperity and the expansion of commerce, he had inherited an unstable economy and a party divided between hard-money and soft-money advocates. Before the month was over, a New Orleans cotton broker failed, then others followed. By April their New York City creditors were failing too, including even the House of Joseph, an arm of the Rothschild financial empire. On May Day the New York mercantile house of Arthur Tappan and Company, founder of the
Journal of Commerce
, collapsed, taking away the source of much antislavery philanthropic funding, although the
Journal
itself survived. The Panic of 1837 had begun.
⁴⁵

The crisis had causes both foreign and domestic. It reflected the chronic shortage of capital in the United States and the country’s dependence on inflows of foreign money. By paying off the national debt, Jackson had returned capital to Europe, and by destroying the BUS, he had made it harder to control the domestic money supply. (Jackson was overreacting against the shocking example of Great Britain, where servicing the national debt in this period consumed 70 percent of the government’s revenues.)
⁴⁶
Like the boom that preceded it, the panic manifested the extent to which America, even then, was enmeshed in a global economy.

The United States imported silver from Mexico, where it was mined, and customarily sent it on to China to pay for our unfavorable balance of trade with that country. But in the 1830s Chinese merchants preferred bills of credit on British banks over silver; these proved convenient in paying for Chinese imports of opium from India. American traders could provide these bills of credit because the British were lending us money. Silver then accumulated in the vaults of American banks, constituting a legitimate basis for their expanded issues of paper currency. With more money in circulation, domestic prices rose, including the price people paid the government for western land.
⁴⁷
On the international market, the prices of cotton and other U.S. export staples soared in the 1830s. Yet the American appetite for European, particularly British, manufactured goods increased even faster. In 1836, U.S. imports totaled $180.1 million, $45.7 million more than the combined value of exports and the earnings of our carrying trade.
⁴⁸
For a while British investors made up the difference by extending credit to cotton factors and buying American securities. But then England suffered a poor harvest and had to import grain suddenly from the Continent. Needing money in early 1837, the Bank of England began to curtail the credit of British firms with large American investments. They in turn pressed their transatlantic debtors. The American financial system could not take the pressure.

Contemporaries reacted to the Panic of 1837 in terms of their political allegiances. Democrats blamed the banks. Whigs blamed Jackson, and especially his Specie Circular. For a long time historians agreed with the Democrats and said that the pet banks had irresponsibly overextended their loans during the boom of 1836.
⁴⁹
But now we know that, monitored by the Treasury, the state bankers showed appropriate caution and that, except for Taney’s friends in Baltimore, the pet banks were generally responsibly managed.
⁵⁰
There is more truth in the Whig argument.

Jackson’s Specie Circular—which Van Buren left in force—did not set the panic in motion but (in the words of an economic historian) “rendered the panic inevitable.” The need to pay the Treasury for land purchases in specie drained specie out of the banking system. Between September 1, 1836, and May 1, 1837, the specie reserves of the major New York City banks fell from $7.2 million to $1.5 million, leaving them vulnerable to sudden shifts in the wind. Having destroyed the national bank and, with it, the paper currency in which people had the most confidence, Jackson then planted, through his Specie Circular, the seed of fear in the public mind that state bank paper was not safe either. Bank note holders therefore quickly became frightened by the string of failures triggered among international cotton brokers when the Bank of England contracted credit.
⁵¹
The holders started a “run” on New York banks. On May 8 and 9 they withdrew a million dollars in gold and silver. No bank could withstand such pressure. On May 10, the New York banks, acting in concert, had to suspend specie payments, and within a few days the rest of the country’s banks had followed suit. By 1837, several years of hard-money agitation had born fruit. Everybody was trying to hoard gold and silver: the banks, the states, the public, even the federal government, through the Specie Circular. Yet the federal mints never produced enough coins for circulation, and the public resorted to foreign coins (like the tiny Spanish silver “picayune”). Farmers went on growing crops for lower prices, but outside the agricultural sector, economic activity declined. Faced with falling revenues, the Van Buren administration had to borrow money. The national debt, which Jackson thought he had eliminated permanently, reappeared and has been with us ever since.
⁵²

The Deposit-Distribution Act of 1836 compounded the banks’ difficulties by forcing them to pay out substantial sums to the states. Fortunately, many states simply deposited their money in the same bank that had been keeping it on behalf of the federal government. After the banks had suspended specie payments, they kept up their scheduled distributions to the accounts of the states the only way they could, in nonconvertible funds, and the states accepted this.
⁵³
Virtually all of the states spent their windfalls quickly. With the aid of the states’ expenditures, the economy started a tentative rebound in 1838. Some banks cautiously resumed the redemption of their notes. In May 1838, an alliance of Whigs and soft-money Democrats in Congress repealed the Specie Circular, and Van Buren bowed to their will. But then another serious economic blow fell: the Panic of 1839.

Southwestern frontiersmen had speculated as irresponsibly as any city-slicker banker. Lured by rising prices for agricultural commodities, especially cotton, land speculators overextended themselves recklessly, while planters hastened to expand production. By 1839, a cotton glut appeared in Liverpool, and the world price began to drop. The fall continued until cotton sold for less than half its 1836 price. The trade by which the United States had paid its way in the world no longer did so. The sale of public lands virtually ceased, and speculators found themselves stuck with inventory worth a tenth of what they had paid for it. The price of field hands fell, and the interstate traffic in enslaved workers shriveled. The Jacksonian destruction of the national bank had left the country without a lender of last resort.
⁵⁴
It was 1819 all over again. Only this time, the depression lasted longer, until 1843.

Repercussions of the panic extended throughout the economy. As businesses cut back production or failed altogether, workers lost their jobs. The infant industries of the Northeast, shoes and textiles, laid off thousands of employees. The banks’ resumption of specie payment in 1838 proved brief. The Deposit-Distribution Act had created many new pet banks all over the country, scattering the government’s deposits among them, making it harder to mobilize what was left of the specie reserves. As a result the American banking system buckled under the pressure from British creditors after 1839. Eventually many banks failed, especially those involved in the cotton trade. Among these was Nicholas Biddle’s United States Bank of Pennsylvania, formerly the national bank and still the largest bank in the country, insolvent in 1841. The Panic of 1837 merged with that of 1839 into a prolonged period of hard times that, in severity and duration, was exceeded only by the great depression that began ninety years later, in 1929.
⁵⁵

Hard times blighted Van Buren’s entire term. Yet the president offered his suffering country nothing by way of relief. “Those who look to the action of this Government for specific aid to the citizen to relieve embarrassments arising from losses by revulsions in commerce and credit lose sight of the ends for which it was created and the powers with which it is clothed,” he told Congress. All the public could expect from the government was “strict economy and frugality,” and a warning not “to substitute for republican simplicity and economical habits a sickly appetite for effeminate indulgence.” The president rehearsed these stern platitudes not so much because they held out any economic hope as because they identified him as loyal to Andrew Jackson’s legacy. Like John Quincy Adams, Van Buren wanted to emphasize his embattled administration’s continuity with a more popular predecessor. But while hard money and little government had affirmed republican virtue during the prosperity of Jackson’s years, they lost some of their appeal during hard times. “It was one thing to invite the people to thrive on their own,” the historian Daniel Feller has observed, “another to tell them to suffer on their own.”
⁵⁶
By the end of his administration, the president had acquired the nickname “Martin Van Ruin.”

From a modern point of view, Van Buren’s embrace of laissez-faire seems paradoxical. The hard-money Jacksonian constituents he was courting did not oppose government intervention in the economy out of any preference for commercial values. On the contrary, they deeply distrusted large businesses, especially banks, and wanted to make sure government did them no favors. The only kinds of government intervention they knew about seemed to them to reinforce the privileges of the wealthy, not to counteract them. In another irony, the notoriously evasive Van Buren ended up far more rigidly committed to a particular economic and banking policy than the famously willful Jackson had ever been. Meanwhile, the Whigs, the party of the business community, reminded people that they favored government planning. Henry Clay deplored Van Buren’s “cold and heartless insensibility” and invoked his own American System of integrated development as a pathway to economic recovery. “We are all—people, States, Union, banks—bound up and interwoven together, united in fortune and destiny, and all, all entitled to the protecting care of a paternal government.” The depression gave the Whig Party a new lease on life. To their goal of rescuing the country from executive tyranny the Whigs now added the restoration of prosperity. “We have many recruits in our ranks from the pressures of the time,” observed William Henry Harrison.
⁵⁷
This was true at the level of leaders as well as voters. A number of soft-money Democratic politicians, calling themselves Conservative Democrats, gave up on Van Buren and went over to the Whigs. In the midterm elections the Whigs gained enough congressional seats that, by striking a temporary alliance with the Calhounites, they were able to install R.M.T. Hunter, an antiadministration state-rights Virginian, in the Speaker’s chair.

The system in which the federal government deposited its funds in “pet” state banks had originated in haste when Jackson removed the deposits from the BUS. Jackson had always regarded it as an “experiment.” Although Treasury Secretary Woodbury had dutifully regulated the pets, an administration committed as a general principle against federal regulation and planning did not find the task congenial. When the pets along with other banks suspended specie payment for a year starting in May 1837, hard-money Democrats complained that the public trust had been betrayed. It was time to rethink the government’s relationship with banking. With Jackson’s blessing, Van Buren summoned a special session of Congress in September 1837 and asked for legislation to authorize removing the taxpayers’ money from all banks, placing it in an Independent Treasury. (The term was used to signify not only independence from banks but also independence from British capital, which had invested heavily in the old BUS.) Each major city would have a Sub-Treasury for local convenience. In the meantime, Van Buren removed the government’s deposits from the pet banks by executive action on the grounds that they did not pay specie as required by law. But his request for a statutory Independent Treasury stalled in Congress, where Whigs and soft-money Democrats pointed out that removing federal deposits from state banks had a deflationary effect and worsened the depression. Not until July 1840, nearly three years later, did Congress finally enact the Independent Treasury law the president wanted. Van Buren’s relaxed style in the White House, emphasizing gracious living, did not make for effective legislative management. It took the additional round of bank failures in 1839 and the need for Democrats to present a unified party in the coming election to prompt congressional action.
⁵⁸