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Covering the Heart of Hamilton County Since 1983
In 1816, the Bank of the United States (BUS) was chartered for 20 years by Congress during the inflationary period that followed the War of 1812. Congress wrongly believed that a private banking institution would somehow stabilize the free market system that had been corrupted by “fiat paper money” during the war. As with the previous Bank of America, New England Federalists (eager to replicate European mercantilism) once again used their political influence to punish Southern industry by raising tariffs on exported commodities such as tobacco, rice, sugar and indigo. The southern states protested but lacked political clout in Congress since the demise of Jefferson’s Republican Party under the hapless President Madison.
However, western states began to join the South. For instance, in 1819, the Ohio legislature levied an annual $50,000 tax on BUS operations in their state. The BUS ignored the tax for 2 years at which time armed Ohio State Marshals were dispatched to the BUS main branch and withdrew the $100,000 in taxes by force of arms.
Other states began to follow Ohio’s lead by taxing the BUS in their own state. Unfortunately, when the Supreme Court considered the matter, Chief Justice Marshall (an ardent Federalist) wrote the majority opinion in favor of the BUS, stating that the “power to tax is the power to destroy.” (Where was that precedent when the 16th amendment was supposedly ratified?)
Andrew Jackson was elected seventh president of the United States in 1828. Leading up to his 1832 campaign for reelection Jackson promised to veto any new charter for the BUS (due to expire in 1836).
The old Federalist Party, now called Whigs and led by Kentucky Senator Henry Clay,
pushed a bill thru Congress to re-
When Duane refused the order, Jackson replaced him with Roger B. Taney. Instead of slowly depleting the BUS deposits during normal business transactions, Taney began shoveling money out of the BUS and deposited them into state banks of his own choosing, so called “pet banks.” BUS president Cornelius Biddle reacted by immediately contracting the nation’s money supply. This created serious financial chaos which Biddle hoped would prove the necessity of his bank. Instead, the public saw thru his sad charade and national opinion turned against him. The doors to the Bank of the United States closed in 1836.
The importance of the demise of the National Bank of America and the Bank of the
United States is that for the first fifty years of American independence, fractional
banking practices and fiat paper money were limited. Whereas the European banks had
taken complete control of their respective governments resulting in unending warfare
between all parties from the French Revolution in 1792 to the end of the Crimean
War in 1856. Meanwhile, less than 10 years after the closing of the Bank of the United
States, America was able to fund a war against Mexico (1845-
Alas, America’s most destructive war was looming. Jackson’s replacement Treasury secretary, Roger B. Taney, became Chief Justice of the Supreme Court and handed down the Dred Scott decision in 1857. John Brown descended on Harper’s Ferry in 1859 and Abraham Lincoln took the oath of office as President in 1861.
After the fall of Fort Sumpter, one of Lincoln’s major objectives was funding the Union Army. To his credit, Lincoln resisted fiat paper money at first and relied on taxes, war bonds and borrowing money from northern banks. However his Treasury secretary, Salmon P. Chase, noted that the banks were not only charging outrageous interest rates but also inflated prices for printing. Chase established the Treasury Department’s first printing operation and the first Treasury note, the “Greenback Dollar,” was born.
Unlike Lincoln, Chase had an affinity for the Constitution and worried that his printing operation may be less that constitutional. Next month we will examine just how right he was.