Thursday, June 04, 2009

Andrew Jackson and the Removal of the "Deposites"

In the spring of 1833, Andrew Jackson had a problem. You wouldn’t think so. Recently inaugurated to a second term as president, Jackson had concluded his first term with a flourish. During the summer and fall of 1832 he had rallied public opinion and defeated attempts to extend the life of the Monster Bank – The Second Bank of the United States – whose charter was set to expire in 1836. Then, although the noxious Henry Clay had managed to stick his nose in and walk away with some of the credit, Jackson had vanquished those treasonous Nullifiers and saved the Union.

And yet, the Monster was “only scotched, not dead.” The Bank's president, Nicholas Biddle still had three years to bribe members of Congress into extending the charter. In a way, Jackson had inadvertently made the wounded Monster all the more dangerous. With the federal debt about to be paid off – an achievement of which Jackson was enormously proud – and with the tariff to remain high for years to come as part of the deal that resolved the Nullification Crisis, enormous amounts of cash would soon be accumulating – and that money would go straight into the vaults of the Monster, which acted as the depositary for federal tax receipts under its 1816 charter. Biddle would no doubt use that money to influence legislators with direct and indirect bribes. In this way, he might be able snatch victory from the jaws of defeat.

Henry Clay, Daniel Webster and the other National Republicans were in Biddle’s pocket and his willing tools. More troubling, Jackson’s own Democrats were not entirely reliable. First, Congress had failed to act for years on Jackson’s proposal for an Independent Treasury. As early as December 1830, Jackson had proposed that a branch of the Treasury Department be authorized to hold government funds as well as private funds without engaging in the ugly, corrupting business of banking. The Independent Treasury would pay for itself by charging for “bills of exchange” (basically, checks). It had the further potential to reign in the excesses of state banks, which issued notes far in excess of their capital and then refused to redeem them for hard cash (specie) in bad times, by accepting their notes only “so long as they continue to be redeemed in specie.” Jackson had outlined his proposal as follows in his December 6, 1830 message to Congress:
In the spirit of improvement and compromise which distinguishes our country and its institutions it becomes us to inquire whether it be not possible to secure the advantages afforded by the present bank through the agency of a Bank of the United States so modified in its principles and structures as to obviate constitutional and other objections.

It is thought practicable to organize such a bank with the necessary officers as a branch of the Treasury Department, based on the public and individual deposits, without power to make loans or purchase property, which shall remit the funds of the Government, and the expense of which may be paid, if thought advisable, by allowing its officers to sell bills of exchange to private individuals at a moderate premium. Not being a corporate body, having no stock holders, debtors, or property, and but few officers, it would not be obnoxious to the constitutional objections which are urged against the present bank; and having no means to operate on the hopes, fears, or interests of large masses of the community, it would be shorn of the influence which makes that bank formidable. The States would be strengthened by having in their hands the means of furnishing the local paper currency through their own banks, while the Bank of the United States, though issuing no paper, would check the issues of the State banks by taking their notes in deposit and for exchange only so long as they continue to be redeemed with specie. In times of public emergency the capacities of such an institution might be enlarged by legislative provisions.

Jackson’s proposal had fallen on deaf ears. Year after year, Congress had failed to act on it. An Independent Treasury, Jackson understood, was not an option for the foreseeable future.

The second troubling circumstance was the fact that, in the fight to kill the Monster the previous summer, the Democratic Congress had virtually stabbed Jackson in the back. At the beginning of July 1832, the Democratic Congress had passed a bill to recharter the Bank by large margins. Jackson had won that war, but only by vetoing the abominable legislation and issuing a powerful veto message that rallied the People to him and made Congress hesitant to override.

Then, at the end of the most recent session, in response to Jackson’s demand for an investigation of the Bank’s safety and soundness, the Democratic-controlled House had concluded by a vote of over 2-to-1 (109-46) that the Bank was sound and the government’s deposits safe. Congress had swatted aside Jackson’s attempt to defang the Monster by legislative means. The fact that the ever trustworthy James K. Polk had issued a powerful minority report provided Jackson with little comfort.

In this way, Congress had demonstrated its unreliability and eliminated legislative options for finishing off the Monster. Was there nothing Jackson could do?

There was one option, but it was not going to be easy. Congress had adjourned the day before Jackson’s re-inauguration and would not assemble again until the beginning of December 1833. Jackson would have to make his move over the summer, before the new legislature, no doubt floating in Biddle’s “loans” and favors, could do any more harm.

Jackson’s idea was this. The 1816 act chartering the Bank provided that federal deposits could be removed from the Bank by the Secretary of the Treasury. The provision, Section 16, was probably intended to cover situations where the Bank was no longer a safe depositary, but the actual language didn’t say that. In fact, the provision said virtually nothing:
SEC. 16. And be it further enacted, That the deposits of the money of the United States, in places in which the said bank and branches thereof may be established, shall be made in said bank or branches thereof, unless the Secretary of the Treasury shall at any time otherwise order and direct; in which case the Secretary of the Treasury shall immediately lay before Congress, if in session, and if not, immediately after the commencement of the next session, the reasons of such order or direction.

This was not the ideal solution. Since no Independent Treasury existed, the funds would have to be placed in state banks. There was the danger that the state banks would use the funds to justify the issuance of increased amounts of those detested and unreliable bank notes. But at least the Monster would be slain. And the state banks were far less powerful than the Monster, and would be susceptible to pressure from the federal government. The federal government could, in effect, restrain some of the excesses of the state banks by careful selection and by making clear that the government would immediately withdraw funds from any bank that suspended specie payments.

Yes, there would be hell to pay. Jackson would be called a dictator and a tyrant. Biddle's corrupt agent, Clay, would trot out the tired assertions that he was “King Andrew”, acting without Congressional sanction and in fact in defiance of the House’s clearly-expressed determination that the Bank was safe. Some disloyal Democrats, encouraged by Bank largesse, would no doubt follow suit. But the danger was grave, and Jackson was the People’s representative. Indeed, he was the only official elected by the vote of all the People. He had a mandate to slay the Monster, and would honor that mandate and protect the People.

There remained, however, a practical problem: the Cabinet. The statute provided that the Secretary of the Treasury, not Jackson himself, had to issue any order directing the transfer of funds from the Bank. When sounded out in the spring of 1833, the current Secretary of the Treasury, Louis McLane, had made clear that he was reluctant to do so.

And there was also trouble with the current Secretary of State, Edward Livingston. Livingston, who held the senior and most visible position in the Cabinet, had done an outstanding job helping to rout the Nullifiers, but he was susceptible to the lure of commerce. He had gone so far as to indicate that, if Jackson removed deposits from the Monster, he would likely resign. In fact, the whole Cabinet appeared soft on the issue, except for the reliable Roger B. Taney, who was serving as Attorney-General. Thus, an attempt to force the issue might well result in an embarrassing round of highly-publicized Cabinet resignations.

Jackson had already experienced one Cabinet disaster, and he was not going to go through that again. Except for good old Martin Van Buren, his original Secretary of State, the members of his first Cabinet had defied Jackson’s orders and disloyally snubbed the virginal Peggy Eaton, and Jackson had had to fire them all. Jackson had lost valuable time and been made a laughingstock. Not twice.

There was, however, a solution that might kill two birds with one stone. He could pack Livingston off on a prestigious overseas mission. That in turn would allow him to kick McLane upstairs, to Livingston’s vacated position at State, where he would be out of the way. And that, in turn, would allow Jackson to select a new Treasury Secretary, one who would be more compatible with Jackson’s views on banks and the Monster in particular.

And Jackson knew the perfect man for the job. William J. Duane of Pennsylvania, a respected Democratic editor and politician from Pennsylvania, was a veteran of the bank wars. Going back to early years of the century, Duane had been a leading member of the anti-bank, hard-money “Old School” wing of the state’s Democratic-Republicans. In that role, he had fought vigorously against the intrigues of state-chartered banks in the Pennsylvania legislature.

At first, all went like clockwork. On May 29, 1833, Livingston vacated State and was hustled on to a ship bound for France as minister plenipotentiary; McLane ascended from Treasury to State; and Duane was installed at Treasury. Jackson was ready to make his move. There would be a huge ruckus, but Jackson could take the heat.

The best-laid plans often go awry, and so it happened here. Part of the problem seems to have been the messengers and manner of communication. Rather than take Duane into his confidence and explain his plans directly to him at the outset, Old Hickory acted through intermediaries. Duane’s first visitor, Reuben M. Whitney, had once sat on the Monster’s Board of Directors until Biddle kicked him off. Only then had Whitney turned against the Bank. Duane, probably correctly, took him for an agent of the state banks drooling to get their hand on the deposits. Later visits by Whitney and Jackson friend, editor and kitchen cabinet member Amos Kendall, only worsened the situation. Kendall, then nominally Duane’s employee in the Treasury, told Duane to get with the program. Duane did not take it well. He was Secretary of the Treasury, not some clerk.

The other, interrelated part of the problem seems to have been a substantive misunderstanding created by the president’s failure to explain himself to Duane. The new Treasury Secretary was no pro-Monster National Republican in disguise. Ironically, the problem was that Duane was the ultimate Jacksonian: he disliked all banks. Having cut his teeth fighting the corruption of state banks, he distrusted them as much as he despised Biddle and his Monster. But Jackson’s plan, he saw, promised to funnel huge amounts of cash to these irresponsible and corrupting institutions (one of whose agents was trying to strong arm him), which would use the funds to generate unsupported notes and irresponsible speculation. Jackson’s cure was as bad as the disease.

Jackson, as we have seen, was not blind to such reasoning. It was for that reason that he would have preferred his original Independent Treasury proposal, in which the federal government would have held tax receipts itself. Moreover, Jackson thought that he would be able to curb the worst excesses of the state depositary banks by threatening to withdraw the government funds if they failed to agree to certain conditions. At all events, it was the best plan available under the circumstances, and certainly better, Jackson thought, than the alternative.

Duane, unfortunately, was not privy to Jackson’s reasoning and plans, or his persuasive powers. During the summer, while Duane stewed in Washington, Jackson embarked on a triumphal tour of New England – and promptly fell ill. For his part, Jackson, receiving reports from Kendall of Duane’s stonewalling, was utterly perplexed by Duane’s apparent disloyalty. How or why could so ardent an anti-bank man rebel and resist killing the Monster? They were ships passing in the night.

The standoff continued for three months, with Duane resisting ever more adamant pleas and instructions by Kendall and others to issue the transfer order. By the time the president got personally involved and tried to explain his position to Duane, it was too late. Duane, offended and now convinced of a state bank plot, would not be budged.

By September 1833, the volatile president had had enough. He wanted the transfer order issued well in advance of the beginning of the new Congress, and time was running out. The one member of his Cabinet who was clearly reliable on the Bank issue was the Attorney General, Roger B. Taney. Jackson directed Taney to draft a memorandum, in the president’s name, justifying the removal of deposits. The document was designed “to communicate . . . the final conclusions, of his [Jackson’s] own mind, and the reasons on which they are founded, in order to put them in durable form, and to prevent misconceptions.” Jackson read the paper to his Cabinet on September 18, 1833, and it later became the basic blueprint for the administration’s defense of its actions when an irate Congress assembled in December. (Taney’s letter to Congress justifying his actions, dated December 3, 1833, is here.)

The defense set forth in the paper was multi-layer. First, citing the absence of language requiring the Secretary of the Treasury to make any findings, Jackson and Taney argued that the Secretary’s discretion was unlimited. At most, the fact that Section 16 required the Secretary to “lay before Congress . . . the reasons of such order or direction” meant only the Secretary needed to have (as we would say today) some rational basis for his action:
The power of the secretary of the treasury over the deposites [sic] is unqualified. The provision that he shall report his reasons to congress, is no limitation. Had it not been inserted, he would have been responsible to congress, had he made a removal for any other than good reasons, and his responsibility now ceases, upon the rendition of sufficient ones to congress. The only object of the provision, is to make his reasons accessible to congress, and enable that body the more readily to judge of their soundness and purity, and thereupon to make such further provision by law as the legislative power may think proper in relation to the deposite of the public money.

At all events, the memorandum argued, there was a good reason for the removal. The Monster was now set to expire in 1836. An orderly transition would require years, and that meant it had to begin now:
It is but a little more than two and a half years to the termination of the charter of the present bank. It is considered as the decision of the country that it shall then cease to exist, and no man, the president believes, has reasonable ground for expectation that any other bank of the United States will be created by Congress. ... It is obvious that any new system which may be substituted in the place of the bank of the United States, could not be suddenly carried into effect on the termination of its existence without serious inconvenience to the government and the people. Its vast amount of notes are then to be redeemed and withdrawn from circulation, and its immense debt collected. These operations must be gradual, otherwise much suffering and distress will be brought upon the community. It ought to be not a work of months only, but of years, and the president thinks it cannot, with due attention to the interests of the people, be longer postponed. It is safer to begin it too soon than to delay it too long.

The memorandum also served as one last plea to Duane and the rest of the cabinet to understand Jackson’s reasoning and to carry out the course upon which he had settled. To me, the tone is surprisingly un-Jacksonian. The president is virtually begging his subordinates to appreciate and adopt his point of view:
Far be it from [the President] to expect or require, that any member of the cabinet should at his request, order or dictation, do any act which he believes unlawful, or in his conscience condemns. From them and from his fellow citizens in general, he desires only that aid and support, which their reason approves and their conscience sanctions.

In the remarks he has made on this all important question, he trusts the secretary of the treasury will see only the frank and respectful declarations of the opinions which the president has formed on a measure of great national interest, deeply affecting the character and usefulness of his administration; and not a spirit of dictation, which the president would be as careful to avoid, as ready to resist. Happy will he be, if the facts now disclosed produce uniformity of opinion and unity of action among the members of the administration.

The president again repeats that he begs his cabinet to consider the proposed measure as his own, in the support of which he shall require no one of them to make a sacrifice of opinion or principle. Its responsibility has been assumed, after the most mature deliberation and reflection, as necessary to preserve the morals of the people, the freedom of the press and the purity of the elective franchise, without which all will unite in saying that the blood and treasure expended by our forefathers in the establishment of our happy system of government will have been vain and fruitless. Under these convictions, he feels that a measure so important to the American people cannot be commenced too soon; and he therefore names the first day of October next, as a period proper for the change of the deposites [sic], or sooner, provided the necessary arrangements with the state banks can be made.

Duane was still not persuaded. Remarkably, he both refused to give the order and refused to resign. On September 22, 1833 he was terminated and on the next day Taney was appointed the acting Secretary of the Treasury – Jackson’s third in just under four months.

Taney acted quickly. Three days later, on September 26, 1833, he began issuing instructions that future tariff receipts should be deposited with specified state banks. His first letter, to the Collector at Philadelphia, provided as follows:
SIR: Believing that the public interest requires that the Bank of the United States should cease to be the depository of the money of the United States, I have determined to use the State banks as places of deposites; and have selected for that purpose, in the city of Philadelphia, the Girard Bank.

You will, therefore, present the enclosed draft of a contract to that bank; and, upon the execution of the contract, you will forward it to this department. You will ask the aid of the District Attorney of the United States, who will see that the contract is executed in due form under the corporate seal. The contract being executed, you will then deposite all of the public money which may come to your hands after the thirtieth day of this present month of September, in the bank above mentioned, until the further order of this department. You will also deposite in the said bank, for collection, all the bonds which may hereafter be taken for the payment of duties.

You will also call on the Bank of the United States at Philadelphia, and receive from it all bonds hereafter given to the United States, which are payable on or after the first day of October next, and deposite [sic] them for collection in the aforesaid State bank. I send you, herewith, an order on the Bank of the United States for that purpose.

When the contract shall have been executed by the State bank, you will forward the enclosed letters to the collectors, at Bridgetown, Burlington, Great Egg harbor, and Little Egg harbor, who have heretofore deposited the money received by them in the Bank of the United States.

You will continue to deposite as usual, in the Bank of the United States, until the thirtieth of this present month of September, inclusive.

You will keep a copy of the contract executed by the bank, and, from time to time, advise this department of any thing you may deem material to the public interest, connected 'with the change of the deposites [sic].

About the illustration at the top of the post:
An anti-Jackson satire, critical of the President's federal treasury policy and of Vice-President Van Buren's influence on the administration's fiscal program. The print specifically attacks Jackson's plan to discontinue federal deposits in the Bank of the United States, and his "experiment" of placing them in selected state banks instead. The artist employs the image of a ship, a contemporary symbol of commerce, to forecast the ruination of American trade as a result of these measures. Jackson stands on a platform near the stern of the ship "Experiment," wielding a whip over eight crewmen who sit at spinning wheels. The ship is moored and upturned barrels sit on top of each of its three masts. A broom is tied to the foremost one, indicating that it is for sale. Rats scurry about the deck. Martin Van Buren stands behind Jackson near a padlocked door to the hold marked "Deposits" and "No Bank." A second ship burns in the distance. The various sailors comment: "Shiver my timbers Bob, if we ain't overrun with these blasted "Rats --" they eat up all our rations! I wish old Veto there, would drive 'em all overboard with little Martin at the head of them." "I say Jack I'm damn'd if this is like getting fifteen dollars a month is it?" "No, No, Shipmate, curse these spinning Jennies, its work only fit for lubbers and old women." "There is the old Constitution burning up! Her owners having no further occasion for her and cant afford to keep her in repair!" "Well what's the use of a Ship war? She's meant to protect "Commerce," but we've got none to protect!" Jackson: "No grumbling you lazy dogs! Perish commerce! perish trade! Andrew Jackson knows what's best for the Country, By the Eternal, Don't I Martin?" Van Buren: "To be sure you do if you mind what I tell you - Don't give up the ship General or I shall not succeed you!"

No comments:

Post a Comment

Related Posts with Thumbnails