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America’s phobia of banks
By Simon Schama

Unaccustomed as they are to being told to stand in the corner wearing dunces’ hats, American bankers, so it’s been reported, are getting grouchy about the “stress tests” inflicted on them by the Treasury as a condition of receiving bail-out funds. They have, it’s rumored, been “pushing back” against restrictions on executive pay. Beggars, it seems, can be choosers. But before they get just a bit above themselves, perhaps they should ponder the long history of the love-hate relationship between banking and government in America.

They could do worse than to take a look at the $20 bill. For there, breaking into the space separating the words “Federal” from “Reserve” is the cresting mane of Andrew Jackson, the most hair-conscious president of the United States. Aside from cultivating his pompadour as the insignia of a free frontier spirit, his locks tied in an eelskin, the seventh US president was also the sworn enemy of paper currency and central banking.

Jackson, who was in the White House from 1829-1837, was a new brand of politician in American life. No one would confuse him with the Virginian gentlemen-planters who had dominated high office in the early republic. He had been Indian fighter, scourge of the British and darling of the frontier crowds. But what really got his dander up was the Bank of the United States, the institution granted the monopoly to print paper money. The “Monster”, he declared at the height of his presidential knock-down battle with its president Nicholas Biddle, “wants to kill me but I will kill it”.

And destroy the Bank of the United States Jackson did, vetoing the Senate’s renewal of its charter in 1832 and running for re-election as the champion of People v Monster. The result of the liquidation of monetary regulation was predictable: wildcat speculation. Two months after Jackson left office in March 1837, the second of the great American financial meltdowns was under way (the first was in 1819). Another swiftly followed in 1839 under the administration of Jackson’s hand-picked successor, Martin Van Buren. On the eve of the civil war, Jackson’s wish for monetary decentralisation had come true beyond his wildest dreams There were 7,000 local currencies circulating in the republic and an epidemic of counterfeiting. It took Lincoln’s Banking Act of 1862, born of a desperate need for dependable credit to fight the war, for a modicum of monetary order to be salvaged from what Biddle had accurately prophesied would be monetary anarchy.

Andrew Jackson in a courtroom
Jackson, as John Meacham’s recent, elegantly written and excessively generous biography reminds us, was an exceptional figure in American politics in many ways: in his repellent enthusiasm for the ethnic cleansing of Native Americans, his dismissal of inconvenient Supreme Court opinions and his certainty that he was the incarnation of popular democracy in heroic action. This armour-plated egotism allowed him to brush off a Congressional vote of censure as if it were an affront to the American people. (It had been provoked by his attempt to bleed the Bank to death by diverting Treasury deposits to local state banks). The fact that enthusiasts of a central bank – from Alexander Hamilton who had created the first in 1791 – to Jackson’s enemy Biddle, were admirers of the Bank of England, only reinforced the conviction of the veteran general that such institutions were damnably un-American. Whether his bankophobia was the cause of his re-election in 1832 is open to debate but there is no doubt that in his mistrust of paper currency and his almost paranoid suspicion of the Bank’s monopoly of issue, Jackson tapped into a pulsing vein of American insecurity about the moral character of money.
Europeans and other foreigners in the 19th and 20th centuries had become so accustomed to characterising Americans as being in thrall to the Almighty Dollar, that they sometimes neglected to notice a strain of national schizophrenia on the subject of pecuniary wealth. Generation after generation, preachers, newspapermen and frontier politicians fervently railed against the poison of cupidity and the citadels of the eastern seaboard where Big Money ruled. From the time around 1790, when Thomas Jefferson, that lyricist of the agrarian life (as long as slaves did the heavy lifting), attempted to persuade President George Washington that Alexander Hamilton’s plan for a central bank was a threat to American liberties, the tripwire of suspicion about banks, especially central banks, has seldom stopped humming.

Fortunately for the directors of Bank of America and Citibank, Barack Obama has few of Jackson’s allergies to what “Old Hickory” reviled as the “monied aristocracy”. But then, so far as I know, Obama hasn’t been burned by paper transactions the way Jackson was.

In the 1790s the track to success for any ambitious young man on the frontier was through land speculation, the law or soldiering and Jackson had done all three. In 1795 he spent three weeks in Philadelphia trying to sell a property of some thousands of acres of frontier prime. Eventually, he found a buyer who paid with a promissory note. Short of supplies, Jackson purchased cartloads with the endorsed note. Not long after, the suppliers of those goods informed him that his buyer’s bankruptcy now made him liable for the balance of the note. The debt crushed Jackson’s economic prospects for a long while and left him with an abiding mistrust of paper instruments of exchange.

Like Jefferson, who in almost every other respect was a more sophisticated mind, Jackson came to believe paper money at best an unreliable creature of financial whim (those depending on it never sure how much it might be discounted), and at worst the choice tool of a conspiracy to enslave through debt. Silver coin had circulated through the country both before and after independence, and Jackson, as authentically populist as his campaign advertising, preferred, for transactions, something on which one could bite.

So the president wilfully misled the country about the evils of the monopolistic Bank of the United States, claiming not only was it an unconstitutional interposition between the elected government and the people but that it had failed in its responsibility to establish a sound paper currency throughout the republic. In fact, in the unstable conditions of America in the 1830s, the paper of the Bank of the United States was by far the most dependable medium of transactions from Maine to Louisiana. But Jackson was convinced that unless the Bank perished, American democracy would always be infected by its machinations. What was at stake was the battle of rural and urban values for the economic soul of America. In some ways this was almost as momentous as the struggle between the slave south and the free north for it went to the heart of what America was supposed to be: a place where simplicity and transparency ruled in small moral communities, or a self-energising machine of unlimited economic growth and power: Field of Dreams or Citizen Kane?

Jefferson, whose apostle Jackson claimed to be, had set the tone by seeing in the wholesomeness of the country the purest forms of social virtue. “Those who labour in the earth are the chosen of God,” he declared in one of his striking excursions into piety. The cities, on the other hand, were “pestilential” swamps of seductive luxury .

But Jackson went further than his cynosure. He was not so naive as to imagine the indebtedness incurred by two American wars against the British would somehow retire itself, and understood, after a fashion, the indispensability of a central bank in managing the securities without which the US government would not have been able to conduct its public business. (A quarter of the debt was held by foreigners.) But he also believed that the Treasury, under the control of elected appointees, was the more democratic office to see to these obligations. So Jackson made the liquidation of the Bank of the United States a centrepiece of his presidency.

Along with the destruction of the Bank, Jackson hoped to rid the republic of what he insisted was the great paper currency swindle. In his farewell address, the outgoing president dealt eloquently with the need to preserve the Union against north-south sectionalism that threatened to undo it. But the subject to which he most passionately warmed was “the paper money system”. “Recent events”, he told the American people (referring to his struggle with Biddle), “have proved that the paper money system may be used as an engine to undermine your free institutions ... those who desire to ... govern by corruption or force are aware of its power and prepared to employ it.”

Paper encouraged speculation; speculation enslaved citizens to the bank monopolists, and those who got hurt were “the bone and sinew” of the country, “men who love liberty and desire nothing but equal rights and equal laws”, “the agricultural, mechanical and labouring classes of society”. The stranglehold exercised by a central bank, which could make “money plenty or scarce at its pleasure”, was a “despotic sway” that made American liberties, well, not worth the paper they were printed on. The Bank of the United States was dead but woe betide the US should ever a successor arise again, as the agency through which “the monied interest” could tyrannise the honest majority!

That successor – the Federal Reserve to whose good faith and credit Jackson now lends his face – was a long time coming, not established until 1913. The powers that Jackson thought subverted the liberties of the “honest” many – the ability to regulate the money supply – are now deemed indispensable to our financial survival. The difference is that while the Fed is a public institution, the Bank of the United States was not. However, Jackson would still disapprove of the very quality we most prize in the Fed: its independence from the Treasury. For Jackson, political and financial accountability had to be one and the same in a true democracy. But the creation of the Fed on the eve of the first world war owed a good deal to the survival of Jacksonian rhetoric against the “monied interest”. Although JP Morgan and John Rockefeller had acted in a public-spirited manner – supplying the wherewithal to prevent a total collapse of the financial system in 1907, Morgan losing $21m during the turmoil – there was concern over the closed-doors nature of their deliberations and the suspicion persisted in the country that the crisis had been concocted so that the moguls could get their hands on the Tennessee Coal and Iron Company at knock-down rates.

Paradoxically, the gold that Jackson had thought to be the common man’s defence against plutocratic fraud was now the target of populist wrath. Once again, it came down to country against city, the farm against the bank. Still very much a net importer of capital, the US, as JP Morgan saw it, would flourish and grow only as long as it could attract foreign, especially British investment. As a debtor, the government was dependent on the credibility of its bond market. Only a dollar pegged to gold, Wall Street and a tight money policy could guarantee those funds, the lifeblood of nascent American commercial and industrial growth. What was the alternative? A currency cheapened by the remonetisation of silver or, heaven forbid, the untamed greenback, would pump up inflation, depreciating any returns on investment. The turn-off for the Rothschilds, Barings and Grenfells would be catastrophic.

The opposite held true in the heartland. Over-production had depressed crop prices and multitudes of homesteaders went under. And out of their distress, out of the West, came a vision and a voice. The vision was for a bimetallic currency; silver coin loosening the supply without running the dangers of a currency destabilised by paper. Silver lodes had been discovered in Nevada and Colorado, in God’s own country, just waiting to be minted. The fact that a year before in 1895, Morgan had sorted out a sudden depletion of gold reserves by negotiation with a mostly foreign syndicate of suppliers, pocketing a fat commission, only made matters worse.

Into the lists against Republican presidential candidate William McKinley rode the goldbugs’ worst nightmare: an impassioned admirer of Andrew Jackson, the small town Nebraska lawyer, lay preacher and Congressman William Jennings Bryan. He was, those who heard him on the Chautauqua evangelical circuit or in Congress said, the most astounding orator they had ever encountered. And Bryan was a Democrat. Before he transformed the party it was an organisation of losers. Only one of its number, Grover Cleveland, had made it to the White House since the civil war and he was a staunch goldbug. But at their Chicago Convention in July 1896, Bryan – even though he would lose the election – revolutionised the Democrats, turning them into the party that would embody the cause of the Common Man in tough times: the party of Franklin Roosevelt, Lyndon Johnson and Obama.

Go to YouTube and you can hear Bryan deliver the speech – or rather a performance of it made four years before his death in 1925 – thought by many to be the greatest in American history. Rich and melodious though the recording is, it can’t hope to reproduce the electrifying oratory at Chicago. Bryan followed a demagogic rant from a South Carolinan racist, and then a woebegone goldbug apologia. The mood was depressed. Bounding to the stage in a baggy-trousered black alpaca suit came Bryan. “I come to speak to you in defence of a cause as holy as liberty – that of humanity.” (Lyndon Johnson would nearly plagiarise those words introducing the Voting Rights Act of 1965). The gold standard was the millstone that one part of America had set about the neck of the other. The claim of its champions, of the Republicans, was that they were the party of business. But “the man who is employed for wages is as much a businessman as his employer, the attorney in a country town is as much a businessman as the corporation counsel in a great metropolis; the merchant at the crossroads store is as much a businessman as the merchant of New York ... the miners who go down a thousand feet into the earth or climb 2,000 feet upon the cliffs and bring forth from their hiding places the precious metals to be poured into the channels of trade are as much businessmen as the ... magnates, who, in a back room, corner the money of the world.”

It was an American work of art, this speech; as native to its dark soil as Whitman’s verse or Twain’s fierce ribaldry. It was landscape, social drama and religion all poured into the same hot mould of patriotic social pride. The crowd that heard it saw the cornfields and the prairie pastures in Bryan’s rolling cadences; then he took them aloft over a continent of social pain. It was gold, the stuff of the Midases of Wall Street, that was inflicting this suffering. What did those who hoarded it know of the true America of sweat and prayer? By the famous peroration, Bryan had given the Democratic party, victorious or not, their new gospel. To the Midases “we will answer their demand for a gold standard by saying to them, ‘You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold.’” Shameless, transported by the gospel truth, Bryan stopped, took some steps back and then, arms out, assumed the posture of the martyred Saviour. Then the din broke over him.

We have, lest it be forgotten, another serious Christian in the White House; another president who, for all the cool threads, winds up his rhetorical passions to speak for Plain Folk. Sure, he won New York. But he also won Indiana. And, unlike Jackson, and unlike Bryan, Obama has never wanted to wage war on the Monied Interests. His inclinations for taking it to Wall Street are a lot less combative than Franklin Roosevelt’s. Obama is trans-racial, trans-sectional, trans-ideological. He believes in a great national cuddle. Whether in the hard times that, for all this financially budding spring, are certain to lie ahead, he can actually be transformational, and make – as American history yearns for him to do – money moral again, remains, as you knew I would say, to be seen.


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