Another Twist on the Jacksonian Bank War: Part 1

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:

ad infinitum.

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:

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

¹Rothbard’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)