Over the course of the next couple
of posts, which I promise will be the last in this series, I’d like to wrap up
my discussion of the venerable Andrew Jackson and his seemingly retrograde
perception of corporations. As well, I plan to reflect on what I hope I've been
able to communicate about the way corporations have been historically perceived
by some of those commonly considered to be America’s founders. To that end I’ll
be reviewing Jackson’s 6th, 7th, and 8th State
of the Union Addresses (delivered between December, 1834 and December, 1836)
and running down what were (along with his Farewell Address) Old Hickory’s
final words on the Second Bank of the United States and corporate banking in
general. Having effectively defeated the “Monster Bank,” by the end of 1833,
Jackson was permitted over the course of the remaining years of his second term
to bask in his victory at the same time he was forced to justify his actions.
The results speak to his abiding suspicion of seemingly any form or banking (or
indeed any kind of corporation), as well as his conflicting hard money bona
fides and the political expediency of supporting state bank paper currency.
Generally
speaking, the criticisms aimed at the Second Bank and the justifications for
its destruction that Jackson deployed in his State of the Union Addresses
between 1834 and 1836 can be grouped into three thematic categories. The first
constitutes a general support for state banking over national banking for a
variety of practical and ideological reasons, not the least of which concerned
long-term strategic thinking on the part of the Democratic Party. The second
revolves around the essentially anti-republican character of the Second Bank of
the United States, being an institution that was led by unelected shareholders
and which put public money to private uses. The third theme common to Jackson’s
latter Addresses to Congress is a distinct antipathy towards any form of
corporation that mixed private and public attributes (such as the 2nd
BUS). Many of the concepts contained within these themes were put to use by
Jackson in prior instances, in his famous Veto Message or in earlier State of
the Union Addresses, for instance. Nevertheless, I would argue that they were
expressed more clearly and with less equivocation in Old Hickory’s writings
after 1832 than those before.
At various points in his 6th,
7th, and 8th State of the Union Address Jackson endorsed
the use of state banks in place of the defeated 2nd BUS as anchors
of the American economy. State banks, he argued, were fundamentally weaker
institutions than the defeated 2nd BUS and operated within a far
narrower scope. A state bank, for instance, was unlikely to attempt to
influence a national election, as Nicholas Biddle had attempted in 1832 using
the resources of the 2nd BUS, because it lacked a national charter. This
was significant because, as Jackson explained in his 7th State of
the Union, it meant that state banks were not themselves appendages of the
federal government. While the Second Bank of the United States had become a
political as well as economic force because of its connections to the Treasury
Department and its direct relationships with certain members of Congress and
the print media, state banks existed largely outside the federal sphere. A
state bank could thus be trusted to hold federal funds because it was not
beholden to federal officials for its existence – officials to whom it at times
lent money. Theoretically, this eliminated potential conflicts of interest. As
state banks lacked the financial resources possessed by the Second Bank, they
were also far less capable of exerting pressure on the governments that created
them in order to achieve a desired end. In an attempt to compel Congress into
re-examining the prospect of a 2nd BUS re-charter, Biddle instigated
a credit crunch and generated an accompanying financial panic between late-1833
and mid-1834. A state bank, or even a group of state banks, simply lacked the
resources or scope to pose a similar threat to the American economy.
In addition to the practical
limitations under which they operated, Jackson also endorsed stated banks on
ideological grounds. He claimed, for instance, in his 6th State of
the Union that federal patronage of state banks was preferable to the continued
existence of the 2nd BUS because the former had been making
significant progress in both promoting the use of specie (gold and silver
coinage) over paper currency as well as gradually eliminating the use of small
banknotes (denominations bellow $20). These efforts would, he argued, help
place the United States on a stable financial footing while still promoting a
degree of economic growth. He elaborated on this concept in his 7th
State of the Union, wherein he claimed that the gradual diminishment of the
“paper economy” via the state banks would, “do more to revive and perpetuate
those habits of economy and simplicity which are so congenial to the character
of republicans than all the legislation which has yet been attempted.” Because
gold and silver were naturally in limited supply their widespread use would
discourage the kind of rampant financial speculation, reckless borrowing, and
the overprinting of paper currency that was one of the main causes of the Panic
of 1819. Eliminating paper denominations below $20 would likewise discourage
the use of bills of credit (whose value was subject to sudden fluctuations) in
everyday transactions and thereby lessen the ability of banks to exert control
over the American economy for their own purposes (since the value of precious
metals was determined on the global market).
Jackson’s 8th State of
the Union pushed this argument further still and gave it a patriotic tinge by
claiming that precious metals were the form of currency intended by the
Framers. Though they had not stated as such in the text itself, he intuited
from, “the whole context of the Constitution, as well as the history of the
times which gave birth to it,” that metallic currency was the intended medium
of exchange of the United States of America. This fact, he went on to argue,
was intended to exclude more “mutable medium[s] of exchange,” such as the,
“pernicious expedient of a paper currency.” Thus, between his 6th, 7th
and 8th State of the Union Address Jackson managed to link together
a preference for hard money and the dependability of state banks with a
patriotic attachment to republican government and the Constitution; a potent
combination under any circumstances.
Of interest concerning these claims
is the fact that the policies being promoted by state banks in the 1830s
actually tended to favor paper currency over specie. While Jackson claimed that
it was the state banks’ support of hard currency over bills of credit that made
them a better means of encouraging economic stability than the 2nd
BUS, state banks in fact made extensive use of the government deposits he
provided them to churn out reams of paper bills in the years after 1832. This
overextension of credit, combined with policies put forward by the Jackson
Administration aimed at encouraging the use of hard currency, was one of the
major causes of the subsequent Panic of 1837. To his credit, Old Hickory did
not appear to be unaware that the state banks that benefited from his
endorsement were guilty of significant indiscretions themselves. In his 8th
State of the Union he acknowledged the affinity some state banks demonstrated
for paper bills at the same time he argued that they were only following the
example put forward by the 2nd BUS and the proliferation of paper
currency it had fostered during its existence. While this would not appear to
be a particularly nuanced perspective it at least demonstrates that Jackson was
aware that state banks were not immune from some of the ills he found so
distasteful in a national bank. The apparent contradiction that this seems to
indicate – of a president encouraging state banking and hard currency while
those same institutions were churning out large quantities of paper bills – was
a consequence of the divided loyalties Old Hickory was forced to court within
the Democratic Party. Though a hard-money advocate himself, and hardly alone in
that, there was a sizeable contingent of Democrats whose occupations (farming,
operating small businesses, manufacturing, etc…) required access to ready
sources of capital. This meant paper currency, and while Jackson was opposed to
the concept in principle he had little choice but to offer tacit support to the
continued printing of bills of credit by state banks in order to prevent the
political coalition he and his allies had assembled in the 1830s from flying
apart.
In addition to opposing the
existence of the Second Bank of the United States because the institution was too
powerful, too influential, and too effectively encouraged the use of paper
bills over hard currency, Jackson also argued in his 7th State of
the Union that the 2nd BUS represented a fundamental threat to the
republican form of government. Specifically he stated that the Bank was, “one
of the fruits of a system at war with the genius of all our institutions,”
whose, “Lavish public disbursements and corporations with exclusive privileges
would be its substitutes for the original and as yet sound checks and balances
of the Constitution.” In this case it’s worth noting that Jackson identified
corporations in general, not just national banks or private banks or state
banks, as the tools of a supposedly destructive political principle. In
particular it was the “public disbursements,” and, “exclusive privileges” that
Jackson believed represented the threat; the ability of chartered entities like
banks to wield large sums of money and make use of certain opportunities not
afforded to the average American. In this sense state banks, though Jackson
lavished his fair share of praise upon them, were in the same category as the 2nd
BUS. A bank chartered by the state of Delaware was a corporation that was both
public and private, had shareholders, could deploy large sums of money, and
enjoyed rights not possessed by any individual citizen. Preferable though such
an institution might have been to a national bank in Jackson’s mind, the
definition deployed in his 7th State of the Union would seem to
indicate a lingering antipathy. Indeed, on some level Jackson might have
considered any and all banks as representing a distinct threat to the American
government as it existed under the Constitution.
Or perhaps it was more specific
than that. Jackson’s 6th State of the Union Address, delivered to
Congress in December, 1834, indicated that though he wasn’t particularly enamoured
of corporations in general he considered public (or mixed public/private)
corporations as being particularly objectionable. It was his estimation that by
giving government a stake in the financial well-being of a profit-making
enterprise, such as the Second Bank of the United States, a public corporation
served only to generate opportunities for corruption and abuse. Legislators
whose responsibility it was to scrutinize and hold to account the practices of
a national bank would find few practical impediments to delivering favorable
reports in exchange for generous personal loans. Meanwhile the government
deposits in possession of said bank could be turned to purposes ultimately
harmful to the public good because, in its private aspect, a national bank was
entitled to make use of its resources as it saw fit. Of these particular sins
the 2nd BUS was indeed guilty. Under Biddle’s leadership the
institution had offered highly favorable loans to members of Congress and
prominent editors in response to their continued public support. When the
subsequent re-charter effort was underway in 1832, Biddle has also deployed
Second Bank resources in an ill-fated campaign to turn the tide in the
institution’s favor. Because a sizeable percentage of the capital held by the 2nd
BUS belonged to the United States government, Jackson regarded these efforts as
a fundamental violation of the public trust.
He reiterated much the same in
his 8th State of the Union, delivered to Congress in December, 1836.
In it, Jackson argued quite plainly that allowing public funds, which “belonged
to the people,” to be deposited in private banks for the purpose of, “producing
a spirit of wild speculation,” was fundamentally unjust. Though this jab was
doubtless aimed at the departed Second Bank, whose charter had by then expired,
it was as true of the state banks selected by Secretary Taney to receive
federal deposits. In either case money collected via taxes or tariffs and
intended to generate tangible benefits for the American people, like paying
down the national debt or funding a national defence, was instead manipulated
in order to multiply the wealth of the already wealthy. Greater regulation of
the Second Bank’s credit, stronger federal oversight, or an overall reduction
of its capital might have alleviated this particular ill, but none of these
measures would have addressed what Jackson considered to be the fundamentally
corrupt nature of the Second Bank of the United States. As he argued in his 8th State of
the Union the shareholders of the 2nd BUS, some of whom were members
of Congress, had effectively attempted to increase the stock value (and their
own wealth) by voting in favor of a re-charter. This Jackson regarded as proof
enough of the corruption the institution fostered; rather than utilize private
wealth to fulfill pubic functions, held as the traditional purpose of a
corporation, the 2nd BUS was making use of public funds to generate
private profit.
The solution, as near as Old
Hickory could figure it, was to cease the creation of corporations that mixed
private wealth with public responsibility. Though it ultimately became
unnecessary once its charter expired in 1836, Jackson recommended in his 6th
State of the Union that the 2nd BUS should have been further
untethered from the federal government and, “be left hereafter to its own
resources and means.” This would have left the Second Bank a wholly private
corporation which, though in need or some degree of government regulation,
possessed its own resources and elected its own directors. Because its capital
would not have any longer been backed by public funds its activities, lest they
become destructive, would have been its own concern. This squared with
Jackson’s previously expressed belief (from his 2nd BUS re-charter
veto message) that banking, like farming or manufacturing, stemmed from the
inherent right of every American to make a living. The purpose of government,
to his thinking, was not the creation of corporations that effectively
amplified the wealth and privilege of the few, as he argued of the 2nd
BUS, but rather the regulation of the corporations that people created for
their own personal benefit in order to ensure the overall public good.
This disdain for public
corporations and their allegedly abusive combination of privilege and wealth
apparently applied to Old Hickory’s outlook on state banking as well. Though,
once again, Jackson spent a significant amount of his latter State of the Union
Addresses identifying state banks as central to the economic salvation of the
United States following the demise of the 2nd BUS, his final address
to Congress in December, 1836 contained a significant caution as well. In it,
he wrote that,
The lessons taught by the Bank of
the United States can not well be lost upon the American people. They will take
care never again to place so tremendous a power in irresponsible hands, and it
will be fortunate if they seriously consider the consequences which are likely
to result on a smaller scale from the facility with which corporate powers are
granted by their State government.
It should come as no surprise that
Jackson wished to take the opportunity presented by one of his final public
statements as president (the election of the previous month having already
decided his successor) to reinforce what had become one of the central themes
of his term in office. This was, in short, that the Second Bank of the United
States had been too powerful, and that said power had been placed in
fundamentally, “irresponsible hands.” Less expected, to my thinking, is the
caution that followed. Evidently it was Old Hickory’s estimation that the
“corporate powers” granted to the various state banks then in operation –
including those holding government deposits – were equally capable of being
abused as those he pointed to during his successful battle with the 2nd
BUS. Necessary though it might have been in 1836 for the Democratic Party to
hold together its hard and soft money wings, it speaks to the strength of
Jackson’s antipathy that he still took the opportunity – indeed one of the last
he would be presented with – to warn his countrymen from investing too much
trust or too much power in any species of corporate entity.
And
so,
Jackson’s
6th State of the Union Address: http://en.wikisource.org/wiki/Andrew_Jackson%27s_Sixth_State_of_the_Union_Address
Jackson’s
7th State of the Union Address: http://en.wikisource.org/wiki/Andrew_Jackson%27s_Seventh_State_of_the_Union_Address
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