Wednesday, January 05, 2011

Did Andrew Jackson Cause the Panic of 1837?

“Did Andrew Jackson's destruction of the Second Bank of the United States cause the financial crises of the 1830s?” With that intriguing question, economist Jenny B. Wahl begins her essay “He Broke the Bank, but Did Andrew Jackson also Father the Fed?”, to me the most interesting entry in a book-full of interesting essays, Congress and the Emergence of Sectionalism.

What, I wonder, is the economics analogue of historiography – oeconomography? After an introductory overview of pre-Civil War financial matters and a brief history of the Second Bank of the United States and the Panics of 1837 and 1839, Prof. Wahl reviews the changing views over time of Old Hickory's “responsibility for the events of the late 1830s.”

The first two stages of Prof. Wahl's oeconomography may be familiar: the “classic explanation”, which “place[d] blame squarely on Andrew Jackson's shoulders,” was succeeded by a revisionist view that events in Britain triggered the Panic; the U.S. simply “fell victim to international shifts in specie demand and supply.” The corollary was that Jackson “was not responsible for the inflation after the demise of the Second Bank.” “Nor was he to blame for the panics and crises that followed.”

The most recent studies by economic historians (or is that historical economists) were, however, news to me. These studies suggest that Jackson's actions cumulatively – the Bank War, the removal of the deposits to the pet banks, the Specie Circular – shook public confidence in banks and precipitated a drain of specie to the west:
If the [Second Bank] and its branches had remained in place, the conditions giving rise to the 1837 panic would not have existed. Absent Jackson's financial policies, moreover, read GDP per capita . . . might have continued its steady upward trend after 1834. In short, financial disorder yielded real consequences.
The essay is interesting on a second level, because it illustrates the connection between a sophisticated discussion of causation and counterfactual analysis. I have complained from time to time about historians' disdain for posing “what if” questions, maintaining that much analysis (and good old banter among history buffs) is really “what if” in disguise. “Lee was a better general than Grant” is really “What if Lee had been in Grant's shoes?”

At all events, as Prof. Wahl rather explicitly concedes, her analysis includes a lengthy discussion of how a hypothetically rechartered Second Bank might have reacted to the monetary and financial crises of the late 1830s – a gigantic What If.

My one complaint concerns Prof. Wahl's treatment of the second panic of 1839, a “crisis that lasted much longer and had more profound effects.” She indicates that “domestic forces clearly generated it” and that it was “rooted more in the intimacy among state treasuries, public works projects, and state banks.” But this dense reader, at least, did not understand her explanation as to why this intimacy gave rise to such a profound depression.

The artist supports Andrew Jackson's decision to withdraw federal funds from the Bank of the United States and distribute them among various state banks. Henry Clay and Bank president Nicholas Biddle's efforts to oppose Jackson's measures are lampooned. Several figures look on and comment as a horse-drawn, covered wagon pulls away from a warehouse and adjacent United States Hotel. In the center below stand Andrew Jackson (holding a coachman's whip) and Uncle Sam. Jackson: "Why Uncle Sam I consider that Store House not safe. as I observe, a number of Rat-holes. and also, they keep a nest of gamblers in the Hotel, so I thought it best to take your produce to another Store House." Uncle Sam: "Well Andrew, I think you do what is best for my interest. Farmer York speaks well of what you are doing. dont mind those barking fellows I will stand by you." Uncle Sam gestures toward two men on the left, Henry Clay and Jack Downing. Clay (gesticulating wildly): "I tell you what Uncle Sam, if you dont make that Fellow Andrew bring back your produce, to this Store, you'll have War. Pestilence, and Famine." Downing (restraining him): "A word in your ear Harry. keep cool. take Jack Downings advice, Uncle Sam does not believe a word you say. the Gineral and he, understand each other pretty well." Beyond them stands Bank president Nicholas Biddle, who urges on two dogs, saying: "Take hold, my well fed dogs, bark at them, they think to turn me out, but I will burn up the House first." His comment refers to his vengeful attempt to cause a bank crisis during the winter of 1833-34 by artificially tightening credit. At lower left two men look on and comment. The first says, "See Hance, how mad Nicholas the Hotel keeper is, because Andrew wont store the produce in his Store House, mid how he is seting [sic] on his dogs to scare the Horses. And Harry, how mad he is, because he cant drive the Team." The second, "Yaw. I sees him, that is he they calls schemeing Harry. he wonted to sell Uncle Sams wood lands, by a trick, the peoples calls his pripery-pill. He is a sly fellow, Uncle Sam dont like him I believe."

1 comment:

  1. I love this post, and I was absolutely thrilled to see the other links that you published that go along with this topic. Thank you for sharing your thoughts. I am happy to be a new follower. :)



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