Friday, April 24, 2015

Corporations in the Early United States, Part X: the War on the Bank, contd.

The message that accompanied Jackson’s veto of the Bank of the United States re-charter bill has since become regarded as one of the most significant expressions of the at-times complex and contradictory Jacksonian ideology. A virtual political manifesto, the message outlined Old Hickory’s belief in a strong executive as a guard against legislative overreach, the triumph of the “common people” over the moneyed elite, and the primacy of “democratic” institutions. As yet another – in not the the most definitive – expression of Jackson’s perspective on banking and corporations, his 1832 veto message is similarly worthy of study and reflection. Aside from the sections that concern themselves with the constitutionality of the 2nd BUS, an issue which Jackson argued had yet to be fully settled, it contains numerous passages that lend valuable insight into how the 7th President viewed the Second Bank in ideological, practical and moral terms.

More than any of his previous writings on the subject of the 2nd BUS, the veto message makes clear Jackson’s dislike for corporate banking, or indeed corporations generally. Whereas in his 2nd State of the Union Address Old Hickory had expressed tacit approval of state banking as a legitimate extension of state sovereignty, by 1832 he seemed to have become far less charitable. From the beginning of his message to Congress Jackson expressed his disdain for the level of privilege that was being extended to the directors and shareholders of the 2nd BUS by the terms of the re-charter bill. “The powers, privileges, and favors bestowed upon [the Bank] in the original charter,” Jackson wrote, “by increasing the value of the stock far above its par value, operated as a gratuity of many millions to the stockholders.” For this and the additional increase in stock value to result from the passage of the re-charter bill, which Jackson calculated as, “at least seven millions more,” the American people at large received little in the way of compensation. Indeed, these dividends, to be chiefly collected by, as Jackson described, “foreigners and […] some of our more opulent citizens,” came directly or indirectly, “out of the earnings of the American people.” There was truth enough in this claim; it was the economic activity, the borrowing, buying and selling, of American merchants, manufacturers and farmers that generated the wealth meant to incentivize the purchase of shares in the 2nd BUS and thereby expand its capital. While there is an argument to be made that the compensation the general public received in return for the perpetuation of an admittedly narrow monopoly was a stable economy and solid currency, it cannot be denied that the shareholders of the Second Bank were the most significant and most immediate beneficiaries of its existence.

Aside from the relative cost to the American people of perpetuating the privileges of the directors and stockholders of the 2nd BUS, Jackson seized on the distinctly un-republican partiality inherent in granting government sanction to private enterprise and the resultant stifling of competition as further negatives on the institution’s existence. Why, he asked, were the stockholders of the Bank entitled to continue to receive the preferential treatment they had already enjoyed for almost twenty years? What so significantly set them apart from any other group of Americans with the money and aptitude to form a corporation? If there was to be a national bank at all, “why should not Congress create and sell twenty-eight millions of stock, incorporating the purchasers with all the powers and privileges secured in this act and putting the premium upon sales into the Treasury?” As I remarked in weeks past, opinions in the early-19th-century United States as to the ideological underpinnings of corporations changed perhaps most significantly in the Jacksonian era. By 1832 it seemed Jackson had come to regard the 2nd BUS as detrimental to the nation’s social order because, to his thinking, it symbolized the government creation of a social and economic class that enjoyed privileges and was entitled to financial rewards that were beyond the reach of the majority of Americans. The fostering of competition was a potential remedy. Just as the states began to issue charters to more than one corporation in a given field, so Jackson argued that the federal government ought to have opened the process of creating a national bank to any and all that had the means to purchase stock. This would have potentially distributed ownership more widely than a simple renewal of the existing Bank at the same time it netted the government revenues far in excess of the fees the existing stockholders were to pay upon re-charter. Thus Jackson conceived of breaking up the monopoly enjoyed by the Bank as ideologically and morally, as well as financially, sound.

To the palpable disdain for the notion of government privilege Jackson conveyed in his 1832 veto message there was added a liberal serving of good-old-fashioned American nationalism. Sprinkled amidst his arguments against the constitutionality of the 2nd BUS and those in favor of protecting the traditional prerogatives of the states, Old Hickory time and again lamented the fact that such a large portion of the Second Bank’s shares were held by foreign nationals (“more than a forth” by his estimation). These non-citizen stockholders, Jackson believed, enjoyed a number of advantages over their domestic compatriots that made it appear as though the so-called Bank of the United States was in reality little more than a depository for the wealthy of Europe. Citizen shareholders, because they were also residents of various states, were capable of having their stock in the Second Bank taxed by the governments of those states. Because foreign shareholders and their property did not fall within the sovereignty of any such state their shares would thus remain untaxed and ultimately be of greater value. This would doubtless encourage foreign ownership of stock in the Second Bank, which would in turn perpetuate an even more significant dilemma.  
              
As aforementioned, the largest portions of the Second Bank’s shareholders were either foreigners, or else residents of Eastern states (New England, the Mid-Atlantic, the Upper South, etc…). Though residents of both Massachusetts and Alabama could theoretically avail themselves of the services the 2nd BUS offered without discrimination, the wealth that their financial activities generated for the Bank would come to rest to a greater degree in the former because it contained the greater number of shareholders. A Westerner who had little patience for the machinations of what he perceived as the “Eastern elite,” this would doubtless had been cause enough for Jackson to regard the 2nd BUS with distaste. Worse yet, however, European shareholders could collect dividends commensurate with their percentage of ownership on the same terms as their domestic compatriots. The more profit the Bank generated the more dividends were paid out. In this way, Jackson argued, the Second Bank actively facilitated the removal of wealth from the South and West to the East, and from thence to Europe. Because this wealth was in the form of hard currency its removal would result in a contraction of capital and the resultant economic shockwaves. This eventuality was of little utility to the American people and of great utility to foreign shareholders. Though I don’t suppose that Jackson was particularly in love with state banks either, being yet another form of government favoritism, they at least avoided this cash drain phenomenon by usually restricting ownership of shares to resident citizens only.

Another consequence of foreign ownership of 2nd BUS stock that Jackson complained of had to do with the election of Bank officers. The fact that the Second Bank’s foreign shareholders were not permitted to help elect the institution’s various officers, devised by Alexander Hamilton and usually considered a prudent measure to limit foreign influence, in fact constituted a serious fault. Because the percentage of foreign shareholders was fairly high, this regulation served to concentrate voting power in the hands of the domestic shareholders that remained. As shares could, at any time, be sold from a domestic shareholder to a foreign national, as indeed Jackson claimed many of the regulations governing the Bank encouraged, this group of privileged electors could be made to shrink over time. Conceivably, a relatively small number of particularly wealthy citizens, perhaps including some of the Bank directors themselves, could come into possession of enough shares though entirely legal means to constitute an effective oligarchy over the financial well-being of the United States. With this argument Jackson turned a regulation intended to preserve the Bank’s American character into a fundamental flaw. State banks could avoid this eventuality by again restricting the ownership of shares, and therefore voting power, to resident citizens. This would presumably help maintain a relatively large franchise and prevent the monopolization of control in the hands of an interested few.

These objections, rooted in nationalism and a fear of foreign influence and intrusion, also orbited around a central aversion on Jackson’s part to the way corporations like the 2nd BUS functioned. This aversion was no doubt particularly strong on Jackson’s part because the responsibilities with which the Bank had been vested allowed it both a high degree of autonomy from government control as well as significant power over aspects of the public sphere. Unlike Congress, the Treasury Department or the Navy, the Second Bank of the United States was, in its fundamental make-up, a private concern. Its shareholders were chiefly motivated by profit, ownership of stock was open to whoever could afford the cost, and decisions were made by an unelected (by the general public) president and board of directors. Where Hamilton, two generations earlier, had seen these aspects of the 1st BUS as necessary evils in the face of the federal government’s inability to fund many of its desired initiatives, Jackson argued in his veto message that, “there are no necessary evils in government. Its evils exist only in its abuses.” It would seem that to his thinking utility, while not unimportant, came second to ideological and moral integrity. Whatever advantages the 2nd BUS afforded the American government and people – Jackson was willing to admit it wasn't without its uses – its very nature violated too many basic republican principles and concentrated wealth in the hands of too few to be permitted to continue.

The last aspect of Jackson’s veto message that I’ll remark upon here is the way that attempted to reframe corporate banking as a chiefly private, rather than public, affair. As I recall I've attempted to explain, much of the discussion about corporations during the early decades of the United States of America’s existence treated them as a form of public utility. Banks or ferry companies or groups tasked with building and maintaining roads tended to be viewed by the state as providers of public services first and profit-seeking businesses second. The First Bank of the United States as Alexander Hamilton conceived it was a tool by which the newly-minted federal government could borrow money in order to fund certain of its initiatives at the same time that it stimulated economic growth. That its capital was backed by the wealth of stockholders whose chief personal aim was collecting healthy dividends was incidental; the wealth and privilege they enjoyed was a form of incentive meant to encourage their participation in a scheme whose long-term beneficiaries would be all Americans. This was not a perspective adopted by everyone in a position to observe how the Bank actually functioned. Republicans like Jefferson and Madison were highly critical of the government-granted privilege that was the basis of how corporations functioned and repeatedly questioned its constitutional legitimacy. Indeed, most of the debates that took place in the late-18th and early-19th centuries concerning the desirability or necessity of corporations in the United States related to issues or concepts like constitutionalism and strict constructionism, egalitarianism, and republicanism. Profits, dividends and the rights of corporate stockholders never seemed to be at the centre of these discussions, except inasmuch as they provided incentive for the private subsidization of public initiatives.

In a break with the presiding narrative, Jackson’s veto message brought to the forefront the private nature of corporations like the Second Bank of the United States and attempted to expose just how much of their existence was devoted to profit over public utility. To this end he argued that the circumstances of the 2nd BUS were calculated to provide maximum advantage to its stockholders at the same time it performed its various public duties. The 1st BUS, he wrote, had possessed a Congressionally-mandated capital of $11 million. With that capital it had managed to perform the various duties required of it as national bank, including paying down the national debt, with relative safety and efficiency. Considering that the national debt shrank from $75 million when the 1st BUS was chartered in 1791 to approximately $50 million when it became defunct in 1811, this would seem a fair claim. The 2nd BUS, by comparison, had a mandated capital of $35 million. What, asked Jackson, could be the purpose of increasing the value of the shares sold by the national bank by $24 million (particularly when $11 million had proven entirely sufficient) other than increasing the opportunities for speculation and bolstering the private gain of the shareholders themselves? Similarly, the charter of the 2nd BUS granted it the privilege of establishing branch offices in whatever locations it deemed useful. Because the Bank was governed by directors and a president who were shareholders themselves, they were doubtless motivated in exercising this permission to choose locations for said offices most conducive to increasing their profits. As the existence of the 2nd BUS was based in part on the widely-accepted (though not by Jackson) notion that said institution was “necessary and proper” to the exercise of the federal government’s various economic responsibilities, Jackson questioned the legitimacy of the Second Bank in turn exercising a privilege that was necessary and proper only to its own private financial designs. In either instance, Old Hickory seemed keen to assert, personal gain was masked by veiled admissions to public utility.

In what I considered perhaps the most interesting argument Jackson deployed in his critique of the Second Bank of the United States, particularly in light of how corporations have come to be regarded in the modern United States, the 7th President also claimed that seeking profit was a right possessed by all Americans. I’ll grant that this was not a point he felt the need to belabour – it occupied a single paragraph sandwiched between two much larger sections – but its significance should not be discounted. In fact, because it’s not a long passage I’ll excerpt it here in full:

Banking, like farming, manufacturing, or any other occupation or profession, is a business, the right to follow which is not originally derived from the laws. Every citizen and every company of citizens in all our States possessed the right until the State legislatures deemed it good policy to prohibit private banking by law. If the prohibitory State laws were now repealed, every citizen would again possess the right. The State banks are a qualified restoration of the right which had been taken away by the laws against banking, guarded by such provisions and limitations as in the opinion of the State legislatures the public interest requires.

This conception of the relationship between the people, corporations and government would appear to consist of nothing short of an inversion of almost all of the preceding discussion on that topic.

Banking, Jackson apparently believed, was not just a means to an end – a tool by which government exercised its sovereignty – but a means in itself. Every American had an innate right to undertake banking as a profession, profit being the ultimate goal, either as individuals or as a legally recognized group (such as a corporation). The relationship between government and corporate banks was thus not one of privilege but of regulation; government did not create banks that required private ambition and private wealth in order to perform public functions, but rather limited the ability of private wealth to be put to use in the form of a bank in accordance with considerations of public utility and safety. This arrangement placed greater focus on the various negative aspects of banking (and corporations in general) and greater responsibility on the part of government for protecting the public from those aspects. In keeping with the admittedly schizophrenic Jacksonian ideal of small government, this placed Congress or the state legislations in the role of mediator rather than leader and the American people as the prime engine of corporate growth. It was their money, their ambition, and the expression of their rights that created corporations, whose regulation was the responsibility of government.

I'm sorry if it seems like I'm overemphasizing my point, here. So often the study of history with a capital “H” is an attempt to understand people and places and ideas that feel absolutely foreign to our modern mindset. The rare occasion of being able to see, with some degree of clarity, how what was transformed into what is can often be a cause for some excitement. Jackson’s re-characterization of the role of the American corporation strikes me as absolutely fundamental to the way corporate entities are viewed in the modern United States, and thus potentially represents an incredibly important moment of transition in American social and political history.

While I don’t necessarily expect you to share my elation, which I admit is deeply strange, do please take the opportunity to read and see for yourself,

Jackson’s Veto Message: http://avalon.law.yale.edu/19th_century/ajveto01.asp

Friday, April 17, 2015

Corporations in the Early United States, Part IX: the War on the Bank

            I think, and I would not be alone in doing so, that Andrew Jackson had more or less decided how he felt about the re-charter of the Second Bank of the United States by the time he delivered his 2nd State of the Union Address in December, 1830. Private correspondence aside, which contains its share of anti-Bank sentiment, the text of said address alone demonstrates fairly clearly the antipathy Jackson felt towards the idea of a national bank (or any other kind of national corporation). In the same breath, albeit rather subtly, it also establishes Old Hickory’s nonchalant, almost unconscious support for broadening the scope of state power and his regard for corporations as a means to do so. Jackson’s 2nd State of the Union is not a dramatic declarative, not a hallowed text that has since gone down in the annals of American political philosophy. It was, however, a harbinger of things to come, and an important point from which to begin to understand what has become known as the Bank War.

            I say “begin,” because the sections of Jackson’s 1830 Address to Congress that dealt with the Bank were in many ways a warning shot aimed at 2nd BUS president Nicholas Biddle and his supporters in the opposition National Republican Party (soon to be known as the Whig Party). Though his administration had theretofore maintained a relatively cordial relationship with the Second Bank and its officers, Jackson was driven to conclude by private conviction and political necessity that the institution was too dangerous to perpetuate (at least in its present form). Having suffered through the effects of rapid expansions and contractions of credit as a trader, farmer and land speculator, Jackson was ill-inclined to receive the assurances of the Second Bank’s supporters that Biddle had set the institution, and the nation, on a stable financial footing. The core of his supporters, small businessmen, farmers and slaveholders as Jackson had been, were similarly antagonistic to the regulatory oversight the 2nd BUS exercised over its state counterparts. That these same poor-to-middling White male voters had been awakened to the undemocratic nature of the Second Bank by the populist rhetoric ginned up by staunch Jackson supporter and Democratic Party boss Martin Van Buren made it virtually impossible for the Hero of New Orleans to gloss over the re-charter issue for all that long.

            Though he certainly tried.

            In the aftermath of Jackson’s opening volley at the end of 1830 the Whigs began to formulate potential strategies to secure a re-charter of the 2nd BUS, no doubt years in advance of when they believed the 1836 deadline necessitated. Meanwhile, Jacksonian Senator Thomas Hart Benton went on the warpath decrying the unconstitutionality of the Second Bank and demanding an open debate on the issue of its forthcoming re-charter. While these were likely outcomes that Jackson had intended, the year that followed kept the President otherwise too preoccupied to seize on the momentum that was steadily building. A seemingly minor scandal involving the wife of one of his cabinet secretaries quickly escalated out of all proportion over the course of 1830-1831, forcing Jackson into an embarrassing political stalemate from which there appeared no easy escape. Combined with a rather more serious crisis revolving around a purposefully harsh tariff and the rather extreme reaction of the government of South Carolina, the end of 1831 and beginning of 1832 saw Jackson robbed of both his entire cabinet and his Vice-President. As a result he was forced to adopt a somewhat more conciliatory position vis-à-vis the Second Bank and its ongoing survival. Two of Jackson’s new cabinet members, Secretary of State Edward Livingston and Treasury Secretary Louis McLane, were on-record supporters of the 2nd BUS and attempted to foster a compromise between the President and the Second Bank’s Nicholas Biddle. McLane accordingly produced a proposal for reforming the 2nd BUS that would have balanced many of Jackson’s objections with the priorities of the Bank and its shareholders.

            Despite the vitriol he would later direct at the 2nd BUS and its leader Jackson appeared receptive to the idea of a compromise, with a significant caveat. Though as aforementioned the core of Jackson’s support came from working-to-middle class White males who traditionally distrusted centralised authority and had suffered dearly during the Panic of 1819, they could not be depended on to deliver a Jackson victory in the presidential election of 1832 on their own. Pennsylvania and New York were the two most populous states in the 1830s and consequently carried the largest numbers of electoral votes (30 and 42, respectively). They were also home to some of the strongest supporters of the 2nd BUS (particularly Pennsylvania, where it was headquartered) and had been won by Jackson in the election of 1828 by relatively slim margins (Pennsylvania with a still comfortable 66%, New York with a perilous 51%). Jackson and his allies rightly feared that making the re-charter of the Second Bank a campaign issue in 1832 might bleed away enough support in these two states to potentially cost the Democrats the election. Consequently, Jackson’s penultimate State of the Union Address of his first term, delivered in December, 1831, was intended to more or less omit any discussion of the 2nd BUS, its constitutionality, or its impending re-charter. It was hoped that this would signal supporters and critics alike that the Bank issue was off the table for the duration of the 1832 campaign season. It had been likewise loosely agreed by Biddle and his allies in the Whig Party, thanks to McLane’s mediation, that a bill authorizing re-charter of the 2nd BUS would not be introduced in Congress during that same period. So long as each party involved held to their end of the bargain it appeared that a formal confrontation would be averted and the 2nd BUS would survive.

            Unfortunately for Louis McLane, who had gone to significant lengths to devise and secure a settlement between the anti-bank and pro-bank forces, certain other elements within Jackson’s cabinet were less inclined toward rapprochement. The original draft of Jackson’s 3rd State of the Union contained a section penned by the Treasury Secretary that made it clear the president was leaving the decision concerning re-charter in the hands of Congress. Attorney General (and future Chief Justice of the Supreme Court) Roger Taney (pronounced “tawny”) balked at the implicit deference to Congressional authority, and suspecting Jackson felt likewise convinced him to rewrite the address so that the administration’s position became somewhat more equivocal. In fairness to Jackson’s sense of restraint the newly-revised Address mentioned the word “bank” only once, yet in tone seemed intent on delaying a conflict rather than attempting to avoid one. The day after it was delivered to Congress Secretary McLane, who was unaware of the alteration to the text he had devised, submitted a report to the same body that praised the Second Bank’s regulatory successes and endorsed the re-charter of a sufficiently modified institution. Jackson’s anti-bank supporters were incensed by both the president’s apparent desire to avoid taking on the 2nd BUS directly as well as McLane’s enthusiastic support for the selfsame institution. They responded with a flurry of editorials and essays in the Jacksonian press denouncing the Bank.

            Stay with me.

            The Whig Party leadership, having witnessed the violent reaction of the anti-bank Jacksonians to even a proposal for re-chartering the 2nd BUS, seized on the issue as the best means for unseating Jackson in the forthcoming election of 1832. Whig Senators Henry Clay and Daniel Webster concluded that because the core of Jackson’s support came from people who were strongly against the continued existence of the Bank, the president would not have dared alienate them during an election year by coming out in favor of re-charter. Faced with a bill to that effect, to which the Whigs could assure a smooth passage through Congress, Jackson would be forced to veto. This would in turn cost the Democrats significant support among the multitude of voters who had come to regard the Second Bank under Nicholas Biddle as a force for economic growth and stability, and potentially lose the election for Jackson. Biddle himself, whose cooperation was required by the Whigs, was reluctant to further incite anti-bank Jacksonians and feared, along with Secretary McLane, that some manner of compromise with the administration over the Bank was no longer possible. Thanks to significant cajoling, however, and assurances on the part of those close to Jackson that he would not risk an outright veto of re-charter, Biddle eventually agreed to support the Whig proposal. Consequently bills were introduced in both the House and Senate in January, 1832 that authorized the re-charter of the Second Bank of the United States.

            The Democratic response to this open attempt by the Whigs to force a confrontation over the 2nd BUS was a rapid and widespread mobilization of some of the party’s most talented and effective orators, legislators and editorialists. This effort enlisted, among others, Thomas Hart Benton in the Senate, future Speaker and President James K. Polk in the House, Attorney General Taney and Postmaster General Amos Kendall, and journalist and eventual co-founder of the Republican Party Francis Preston Blair. Their aim was to initiate a campaign intended to discredit the Second Bank and its directors in the eyes of the American public and their representatives. Among the tactics this group employed was a proposed Congressional investigation into the activities of the 2nd BUS and its directors stemming from allegations of misconduct and widespread corruption. Baseless though many of the claims made against it were by the anti-bank Jacksonians, the Second Bank had shown a high degree of partiality by offering credit to those who had proven themselves its consistent supporters. Indeed, many of the legislators, editors, and merchants who formed the core of the pro-bank faction had benefited directly from the benevolence of the 2nd BUS and its directors. This made rallying an effective defense much more difficult. Attempting to obstruct an investigation might have aroused public suspicion, more so if it came to light exactly who were among the Second Bank’s most frequent patrons. A special committee was therefore selected without pro-bank obstruction and a report was produced, laden with hearsay and innuendo, which served to confirm Jackson’s various criticisms. When Biddle himself arrived in Washington during the climax of the re-charter debate and began distributing citizen’s petitions and urging Congressman to write pro-bank editorials, Francis Blair seized on the fact as confirmation of the Second Bank’s intrusion into the political process and its fostering of corruption.

            Though the anti-bank Jacksonians were able to delay the re-charter debate far beyond what many of their opponents thought possible, and sowed significant doubt in the minds of the American public as to the legitimacy of a national bank, their efforts were ultimately ineffective. The re-charter bills were successfully passed in the Senate on June 11th by a margin of 28-20 and in the House on July 3rd, 107-85. Wasting no time, Jackson vetoed the combined re-charter bill on July 10th

Friday, April 10, 2015

Corporations in the Early United States, Part VIII: Old Hickory, contd.

What’s important about the presidency of Andrew Jackson, in the context of a discussion about corporations in the early United States as in any other, is the theretofore unexplored perspective it brought to bear on what had previously been the exclusive province of statesmen. The so-called “democratization” of America that Jackson oversaw in the late 1820s and into the 1830s represents a fundamental turning point in the history of American political and social life. Those who had previously been thought of by the nation’s elite as a disorganized, ill-informed, and easily manipulated rabble – the American citizenry – became the “common people.” Egalitarianism became the rule of the day; lack of experience became a virtue. Men who had in previous generations attempted to hide their lowly origins and become “gentlemen” began to celebrate their provincialism, their coarse manners and plain dealings as symbols of pride and guarantees against corruption. Jackson oversaw this transformation because he was a part of the rabble, the mass of Americans who had followed the proposals and initiatives of the Founders since the years of the Revolution but were rarely given cause to lead themselves.

            Accordingly Jackson’s opinions on the need for a central bank and on corporations in general were much more in line with that of the average American than those of any of his predecessors as president. He did not always think in terms of national priorities and national outcomes; of international trade or commerce or economic trends. He could be provincial. He could be short-sighted. Part-ideologue and part pragmatist, he believed most strongly in his lived experiences and his own deep-seated convictions. In this way he was so like the people whose loyalty he courted, and they returned it more deeply and more powerfully than had ever been possible with Madison, Jefferson, or even Washington.

            I say all of this because I think it’s important to understand that Jackson’s perspective on corporations was less a break with continuity than a kind of inversion. He did not build on the groundwork laid by Hamilton, Jefferson and Madison – who between them established, denounced and re-established central banking in the United States – but expressed and rearticulated the experiences of the general American population. He experienced all that his predecessors had – the fat and thin years in the 1790s, the near-breaking point of the War of 1812, the Panic of 1819 – but from a different point-of-view. He knew from personal experience what the 1st and 2nd BUS had done for America and Americans, and in 1830 seemed finally to be in a position to turn those experiences into national policy.
          
Between the delivery of his first message to Congress in December, 1829 and its follow-up in 1830 Jackson seemed to have re-evaluated his previously cautious criticism of the 2nd BUS. His Second Annual Address to Congress in December of that year was much clearer in its condemnations of the central bank and the need for a potential replacement than its predecessor. In it Jackson again brought up the topic of the Second Bank in the context of its re-charter, not due for a further six years. The consequently pre-emptive nature of the debate the President appeared eager to spur could evidently be excused by what he claimed were the, “dangers which many of our citizens apprehend from that institution as at present organized.” Beyond the criticisms or concerns with which the American people had been inclined to view the central bank in 1829, matters of opinion both, by 1830 they apprehended dangers. Matters, it seemed, had escalated. Jackson followed this by framing the modification or replacement of the 2nd BUS in terms of the, “spirit of improvement and compromise which distinguishes our country and its institutions.” Rhetorically it seemed like Jackson was attempting to recapture the initiative. “Improvement and compromise” were doubtless among the terms that Secretary Hamilton deployed in 1791 while attempting to convince Congress and President Washington that a central bank was necessary to the growth and stability of the United States. The Bank was an improvement because it would allow the federal government to borrow money and expand existing infrastructure, as well as create a stable national currency capable of funding economic growth in manufacturing, agriculture and trade. The Bank of the United States was also a compromise; Hamilton made no secret of its shortcomings, or the fact that it would greatly enrich a small number of stockholders above any other single person. Yet, in 1830, President Jackson attempted to reframe concepts like improvement and compromise. Declaring them virtues particular to the American genius, he set them against the 2nd BUS. To improve and compromise is, colloquially speaking, to be progressive, constructive, prudent or reasonable. As Jackson seemed increasingly eager to convince his fellow Americans, the Second Bank was none of these things; it was corrupt, irresponsible, static and ultimately destructive of democracy and its attendant values. He may not have been prepared to say exactly that in 1830, but he seemed at least to be planting the seeds.

That being said, and taking his word for it, Old Hickory seemed not to be completely against the idea of there being a central bank. Indeed, though his concerns about the way the Second Bank of the United States operated were both constitutional in nature and responsive to those of his fellow citizens, he seemed willing to concede that the Bank did perform certain useful functions. The second half of the above quoted passage, after the words “and its institutions” reads: “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.” Significant though these objections where, it seemed President Jackson agreed at least that the 2nd BUS afforded certain “advantages.” Furthermore, he was willing to agree that these advantages were important enough to the public good of the United States as to attempt to modify the Bank in such a way to ensure it could continue to provide them.

This is where things get complicated.

Because it seemed that President Jackson’s solution, so revealing as to his beliefs about corporations and their purpose in American life, was to alter the 2nd BUS in such a way to make it no longer a corporation at all. Rather, Jackson posited, an American central bank should have been a branch of the Department of the Treasury, capable of holding both individual and government deposits but not of making loans or owning property; a collector of taxes that could sell bills of credit as a means of exchange, but would have no shareholders, no debtors, and few officers. This altered institution would have been something altogether different than the 1st or 2nd BUS; less a bank than a provider of miscellaneous financial services. These changes would, Jackson argued, allow the central bank to no longer violate certain constitutional provisions and render it incapable of operating, as the existing Second Bank presumably did, on the, “hopes, fears, or interests of large masses of the community.” Doubtless this passage was intended to condemn the way the Bank combined its privileged position as an arm of government with the profit-making motives of its shareholders. As a government department it stimulated the economy by offering loans and as a private corporation it did so to the fullest extent possible, at times without considered the long-term consequences. In Jackson’s defence, the Panic of 1819 was at least partially the result of a dangerous overextension of credit on the part of the 2nd BUS and its various branch offices. While that institution can hardly be blamed for engineering the early-19th-century land rush that created such a serious demand for large quantities of paper currency to begin with, officers of the Bank proved themselves exceptionally capable of and willing to exploit it.

Interestingly, Jackson followed up what appears to be a strongly anti-corporate position with an offhand endorsement of state banking. After stating that separating the functions of the Second Bank of the United States from its status as a corporation would neutralize many of its faults, Jackson wrote that, “The States would [therefore] be strengthened by having in their hands the means of furnishing the local paper currency through their own banks.” This passage seemed not to be delivered with any kind of emphasis, and in that sense it – paradoxically – is rather emphatic. It should come as no surprise that Jackson was eager to increase the power of the states at the behest of the federal government. The old general had been a states-rights advocate since his days as a legislator in the 1790s, and had been swept into the presidency in 1828 on a tide of populist discontent with the moneyed elite that had traditionally dominated American politics. What is of interest is that Jackson apparently considered state banks to be so closely tied to state sovereignty that to his thinking weakening federal control over the former would directly benefit the latter. This is significant for at least two reasons.

One is that it indicates Jackson’s endorsement, implicit or explicit, of the conception of corporations as extensions of the sovereignty that creates them. Chief Justice Marshall expressed quite clearly in McCulloch v. Maryland that when the United States Congress creates a corporation through an act of legislation (as it had with the 2nd BUS in 1816) it was engaging in a transfer of sovereign power to said corporation. In essence a corporation was a means by which a government could achieve a desirable end; a mechanism for making use of state power that was funded by private wealth. Jackson did not echo this claim in his Second Address to Congress, loath as I’m sure he would have been to publically agree with the venerable Chief Justice on anything. Nevertheless, he appeared to approve of the same basic concept. Lessening the power of the 2nd BUS would strengthen the power of the states, he wrote, because it would allow them to independently exercise a specific sovereign power (in this case the issuing of paper currency). Said exercise would be facilitated through the use of local banks – “their own banks,” as Jackson put it. State banks were thus extensions of state power because they allowed state governments to accomplish something they had the sovereign right to do but lacked the means to realize. Disagree though he might with the Chief Justice over the scope of this principle’s application – state or federal – Jackson and Marshall apparently agreed that corporations were in essence tools for the expression and extension of sovereign power.

The leads me to the other significant connotation of Jackson’s offhand endorsement of state banking. The most obvious conclusion to draw from the observation that Jackson was critical of a national bank but supportive of state banks is that he perceived there to be a difference between the two. In truth, there were. In the same way that a state government was different from the federal government – in terms of the limits of their respective sovereignty – the scope of the autonomy they enjoyed and the nature of the power they exercised separated state banks from national banks in very real ways. A state bank, like a state government, flowed out of the sovereignty of the people whose lives it most directly affected. The people of, say, North Carolina went to the polls and elected a government to represent their interests, and that government in turn chartered a corporation (in this case a bank) in order to see to those interests. Theoretically the government of North Carolina had nothing to fear from the Bank of North Carolina because said government had ensured the bank charter it was granting contained nothing potentially offensive or destructive to its own authority. The resulting state bank was based in North Carolina, drew its legitimacy from the government of North Carolina, and relied on the legislators selected by the people of North Carolina to renew its charter a some future date. A corporation of this nature likely met with Jackson’s approval because it both provided a set of useful services and was ultimately controllable.

A national bank was a somewhat more complicated proposition. Because they were charted by the federal legislature the various iterations of the Bank of the United States drew their legitimacy from the sovereignty possessed by the federal government. This sovereignty was supposedly drawn from the legitimacy the federal government enjoyed at the behest of the general population. Unfortunately for many advocates of national banking, federal sovereignty was not something many states-rights advocates well into the 1850s and 1860s were convinced existed at all. The states possessed real authority and legitimacy, they claimed, which was delegated to the federal government for the purpose of pursuing certain national priorities. The federal government thus possessed no sovereignty of its own, and the states must always have the final say in the event of a potential conflict. A national bank was thus on shaky philosophical ground in the minds of men like Jackson and his allies because the sovereignty of which it was an extension was not self-contained or autonomous but was a conditional delegation made by the various states. Said national bank should thus have been beholden to the states in the same way the federal government was. Experience, however, had proven otherwise.

Chief Justice Marshall’s decision in McCulloch v. Maryland made it clear that because the 2nd BUS was the creation of a federal statute it was protected from state interference by the Supremacy Clause (Article VI) of the United States Constitution. This created a supremely troubling situation for advocates of states-rights and strict constructionism. The Second Bank of the United States was chartered by the United States Congress, an assembly of legislators elected to represent the interests of voting citizens from each of the (as of 1816) 19 states. If all of the Congressmen from, to repeat an example, North Carolina had voted against granting the Second Bank’s charter in spite of the fact that the motion passed with sufficient support to become law, the citizens of that state would still be bound by said bank’s authority though none of their representatives supported it. If the government and people of North Carolina wished to alter some aspect of how a bank chartered within their own state functioned, or wished to deny said bank the privilege of re-charter, it would be entirely within their power to do so. If, however, the people and government of North Carolina wished to alter or abolish the 2nd BUS, under whose monetary authority they were ultimately beholden, they could not do so without a sufficient level of support from other states. The Second Bank (and the First, for that matter), thus remained in practice beyond the reach of the sovereignty possessed by any one of the states at the same time that it exerted regulatory authority over the banks they themselves had chartered. That the Second Bank was also a thoroughly unrepresentative institution whose directors and president were elected by shareholders rather than the general voting public no doubt further compounded the ire felt towards it by Jackson and his supporters in the Democratic Party.

To be fair, state banks were similarly undemocratic institutions; they too had directors and shareholders who were motivated by dividends and profit margins. Jackson was evidently willing to overlook these facts, however, because the amount of damage state banks could do, and the size of the niche the state had carved out for them, were necessarily limited. In this sense I believe Jackson did possess a utilitarian streak. He understood as clearly as any of its supporters that corporations like the Second Bank did serve a purpose. Without precipitously raising taxes – another perennial bogeyman of strict-constructionists – government simply could not afford to tackle every problem that fell within its authority. Chartering a corporation that could combine delegated sovereignty with private wealth was a proven solution, provided there were reasonable limits to the power it exercised and the autonomy it enjoyed. By Andrew Jackson’s reckoning, those that applied to the Second Bank of the United States were thoroughly unreasonable.

And so,

Andrew Jackson’s Second State of the Union: http://en.wikisource.org/wiki/Andrew_Jackson%27s_Second_State_of_the_Union_Address

Friday, April 3, 2015

Corporations in the Early United States, Part VII: Old Hickory

In the interest of full disclosure, the next few paragraphs probably won’t contain a great deal of insight into the evolving perception of corporations in the early United States. The fact of the matter is that between the Panic of 1819 and the presidency of Andrew Jackson (1829-1837) the 2nd BUS slowly but surely recovered some of the confidence it had lost during the financial crisis, the American economy continued to expand, and the Republican mainstream continued its support of the American System and its accompanying nationalist economic policies. It was, in short, a period of gradual transition, if not dramatic change. That being said, I do feel it’s important to provide at least an overview of some of the processes that unfolded, the social and political fissures that gradually formed, and the rise of certain political figures who would come to define America’s nineteenth century. If this doesn’t interest you then by all means skip ahead to the sixth paragraph of this post where I assure you the really juicy stuff begins.

            Still with me? Right then…

            Though the Second Bank of the United States managed to weather the Panic of 1819 with reasonable success, thanks to the stern oversight of its president, Langdon Cheves, the effects of the recession were widely felt by a great number of Americans into the 1820s. Unemployment was widespread, property values plummeted, and confidence in paper currency was shaky at best. Seeking to remedy the nation’s economic woes and restore faith in the concept of a central bank, Cheves’ replacement Nicholas Biddle began a program of gradual credit expansion, coupled with increased commercial loans and consistent monetary oversight (aimed at the historically paper-money-mad state banks). Biddle was a Pennsylvania prodigy, the scion of a long-establish Quaker family who had graduated from Princeton at age 15 and demonstrated a remarkably broad array of talents in matters of law, economics, diplomacy, classical philosophy and art. In 1816 he’d been appointed by President Madison as one of the Second Bank’s government directors; upon becoming president of the institution in 1822 he oversaw a period of steady, well-regulated growth that did much to restore its reputation and firmly establish its role as the solid anchor of the American economy. No less august personage than Albert Gallatin, Treasury Secretary under Jefferson and Madison and one of the nation’s foremost financial authorities, agreed upon reviewing Biddle’s performance that the 2nd BUS was more than adequately fulfilling its intended role. Though critics of the institution remained scattered throughout the states and Congress, it appeared that public opinion was generally in favor of the Bank’s continued existence, or at least indifferent enough to leave it to its own devices. Unfortunately this was not to be the case for long.

            In the annals of American presidential elections 1824 stands among the more remarkable years. Not only were its immediate circumstances fraught with tension – four candidates from the same party running against each other, the vote being thrown to the House of Representatives when no clear winner emerged – but it represented, in the long term, the end of the so-called “Era of Good Feelings” and its outward political consensus and marked the beginning of a much more factious, populist, ruggedly egalitarian era in the history of the United States. The previous election in 1820 saw James Monroe run completely unopposed, a fact representative of how few major political disagreements remained following the virtual collapse of Federalism after 1814/15. By 1824, however, serious fractures had formed among the ruling Republicans, and that year’s elections saw four members of the same political faction square off. Two were members of the Monroe cabinet, Secretary of State John Quincy Adams (son of Founding Father and President John Adams) and Treasury Secretary and former Georgia Senator William Crawford. The third candidate was Speaker of the House Henry Clay, a Kentucky Congressmen who had helped negotiate an end to the War of 1812 and was one of the principle architects of the American System. The fourth and perhaps most significant office-seeker in 1824 was a low-born Tennessee cotton trader, gambler, duelist and military officer named Andrew Jackson.

Having secured a spectacular victory at New Orleans in 1815 (thanks in no small part to the city’s population of free African-Americans) and precipitated an unauthorized invasion of Spanish Florida in 1818, Jackson had become a nationally popular figure in spite of his limited record of public service. His strength was partially drawn from his status as a largely self-made man whose life was dominated by military service and years spent as a country lawyer and planter on the Tennessee frontier. Unlike his opponents, who were generally well-educated, well-born or both, Jackson claimed to speak for the “common man” who distrusted privilege, was suspicious of the Eastern elite, and had suffered greatly at the hands of the Second Bank of the United States and its at-times schizophrenic attitude towards credit. This proclivity for populist rhetoric was actually rather ironic considering Jackson’s well-documented authoritarian streak and the frequent instances during his subsequent terms as president of a casual disregard for public opinion. At the time of his nomination many of his fellow Republicans, including Clay, Adams, Albert Gallatin and Thomas Jefferson, considered him fundamentally unfit for the office of President due to his irascible temper and military habits. For millions of Americans, however, he was the embodiment of the raucous, unpretentious, unforgiving lifestyle they faced every day, and the leader who spoke most forcefully to their interests and experiences than any that had come before.

Unfortunately for Jackson, and indeed for all his fellow presidential candidates, no one man enjoyed sufficient support across the entire United States to secure an outright victory in 1824. Jackson and Adams finished in first and second place, respectively, but with only 99 of the required 131 electoral votes (to Adams’ 84) the victor of New Orleans came up tragically short. In accordance with the provisions of the 12th Amendment the top three vote-getters had their names submitted to the House of Representatives to be voted on a second time. Just as in 1800 the congressmen presented their ballots as states rather than individuals, and so regional politics were once more permitted to spill into the national arena. Clay, who had come in fourth and was thus out of the running, was able to use his position as Speaker of the House to arrange a tidy victory for Adams on the first ballot. In return Adams agreed to appoint Clay as Secretary of State while Jackson, who had won a plurality of the popular vote (41.4%), raged at what he declared was a “Corrupt Bargain.” Over the course of the next four years President Adams attempted to preserve his predecessor’s nonpartisan administrative style by maintaining a neutral attitude toward the emerging factionalism among his fellow Republicans. This tack proved unsuccessful due in part to Adams’ refusal to make use of political appointments in order to recruit potential allies (as was common practice at the time), as well as the steadfast opposition he faced in Congress to the great majority of his agenda. The stymied Jackson, meanwhile, made use of the narrative surrounding his defeat – hero of the common man robbed of victory by the bastion of the Eastern elite – combined with the organizational savvy of New York political organizer Martin Van Buren to craft an extremely effective political machine that propelled him to an easy victory over Adams in 1828 (178 electoral votes to Adams’ 83).

Here’s where it gets good.

While Jackson’s opposition to banking and commerce weren’t exactly a secret, the status of the 2nd BUS hadn’t been an issue that received a great deal of attention during the 1828 presidential campaign. Key to Jackson success, however, had been his ability to harness the discontent that still lingered among state banking interests over what they perceived as the intrusive oversight of the Second Bank of the United States. Combined with the mistrust felt by millions of mainly-rural Americans who remembered all too clearly the damage the Second Bank had wrought with its credit policies and subsequent response to the Panic of 1819, Jackson and his so-called “Democratic Party” had managed to resurrect the alliance between the agrarian South and entrepreneurial North that had been the core of Jeffersonian Republicanism. Due to the competing hard-money (gold and silver) and paper money factions within this nascent organization, Jackson had refrained from taking a strong position on banking in the immediate and maintained cordial relations with Biddle and the other directors of the Second Bank. Biddle himself had reportedly voted for Jackson, and though he was unwilling to allow the institution over which he resided to become part of the Democratic Party patronage machine he seemed amenable to much of the reform agenda that Jackson’s platform entailed. For his part Jackson seemed open to maintaining cordial relations with the 2nd BUS, met Biddle’s proposals for paying down the national debt with enthusiasm, and appeared to have come around to the idea that a central bank was not without purpose after all.

The first cracks in the relationship between the Jackson Administration and the Second Bank emerged in 1829 with the delivery of the president’s First Annual Address to Congress. Displaying once more the democratic bona fides that had garnered him such widespread support in 1824 and 1828, Jackson stated that though the re-charter of the Second Bank was not due until 1836, “I feel that I can not, in justice to the parties interested, too soon present it to the deliberate consideration of the Legislature and the people.” Though the 2nd BUS was a private corporation whose legitimacy was well-established (as the rulings of Chief Justice Marshall attested), Jackson purported that, “Both the constitutionality and the expediency of the law creating this bank are well questioned by a large portion of our fellow citizens.” By placing the task of reviewing the performance and necessity of a central bank in the hands of “the people,” his “fellow citizens,” and their representatives in Congress, Jackson was able to maintain his professed attachment to democratic ideals while once more calling attention to the Second Bank’s public functions and accompanying public accountability. Indeed this opening shot in what would come to be known as the Bank War was, by the standards of the abuse Jackson was to later heap on the Second Bank and its president, both restrained and focused on questions of civic utility. To that end he concluded the relatively brief section of his Address to Congress focused on the 2nd BUS by asking,   

If such an institution is deemed essential to the fiscal operations of the Government, I submit to the wisdom of the Legislature whether a national one, founded upon the credit of the Government and its revenues, might not be devised which would avoid all constitutional difficulties and at the same time secure all the advantages to the Government and country that were expected to result from the present bank.

Though he obviously disagreed, or at least found suspect, Marshall’s opinion of the legitimacy of a nationally-chartered central bank, Jackson made use of very similar language to the Chief Justice in describing said institution’s theoretical role. The measure of a national bank’s utility was determined by whether or not it was “essential to the fiscal operations of the Government.” Its purpose, or at least the only one worth mentioning, was to, “secure all the advantages to the Government and country,” that the people and their representatives required. Marshall may have been willing to argue that the charter incorporating the Second Bank of the United States was the property of its shareholders; an assertion Jackson doubtless would had expressed little sympathy for. That being said, neither man seemed willing to discuss the Bank in terms of the rights and privileges of those shareholders, but rather in regards to the services their corporation could provide to the general population.    

In spite of the generally indirect approach Jackson applied in calling into doubt the worth of the 2nd BUS in 1829 he did make at least one substantive attack on its performance. When he acknowledged the reservations many of his fellow citizens held regarding the Second Bank, Jackson admitted, as if in sympathy, “that [the bank] has failed in the great end of establishing an uniform and sound currency.” This was perhaps the most important function the central bank was supposed to provide. After the end of the Revolution no government in the United States, be they state or federal, issued paper currency on their own authority. Banks were thus the only source of bills of credit, for most people the only form of circulating currency they had access to. The further a paper currency travelled from its point of origin, however, the less likely it could be redeemed for its full value. A Bank of Pennsylvania dollar, for instance, might be worth its face value in Philadelphia or Pittsburgh, but in Atlanta or Knoxville would likely fetch only a fraction of its stated worth. Few state banks could consequently provide bills of credit whose value was stable across the whole of the United States, creating difficulties for trade and commerce and necessitating the frequent, cumbersome and at-times risky transportation of large quantities of specie. A central bank, however, with branches in every state whose capital was anchored by government deposits, and was also the sole purveyor of Treasury bonds and collector of tax revenues, could issue bills of credit whose value was consistent across every state in the Union. As far back as Alexander Hamilton’s 1791 proposal for the 1st BUS this had been viewed one of the chief benefits a central bank could supply to the fledgling United States. If Jackson’s claim had been apt, if the 2nd BUS had indeed failed to established a “uniform and sound currency,” it would indeed had called into question the need to perpetuate the institution and continue to reward such a fundamental failure.

Unfortunately, for Jackson I suppose, his claim had little basis in fact. Biddle had proven to be an exceedingly capable administrator, and in short order following his appointment as its president in 1822 had placed the 2nd BUS on sound financial footing. This he accomplished by carefully but steadily extending the Second Bank’s credit and allowing branch offices a certain amount of discretion in making loans to the most viable business elements in their respective regions. By 1829 the Second Bank of the United States had managed to shed most of the opprobrium it had earned during the Panic of 1819, and the bills of credit it emitted enjoyed wide circulation and widespread public confidence. The purpose of Jackson’s assertion to the contrary was thus likely intended as a signal of intention. Baseless as it was, and adamant as the rejections of it were from both houses of Congress, Jackson’s calling into doubt the viability of the Second Bank doubtless shook Biddle’s belief that his relationship with the new administration was going to be a smooth one. At the same time Jackson likely intended to signal both hard money agriculturalists (like himself, who distrusted paper currency altogether) and the state banking interests (who resented the control the 2nd BUS exerted over their lending policies) that he was sympathetic to their respective positions. In the immediate, however, little about the public relationship between the Jackson Administration and the 2nd BUS changed; no formal policy concerning the Second Bank emerged, and its accustomed relationship with the Treasury Department continued.

As per usual,

Andrew Jackson’s First State of the Union: http://en.wikisource.org/wiki/Andrew_Jackson%27s_First_State_of_the_Union_Address