Why America’s Bankers Should be Feeling Pretty Damn Grateful

Article by Charlie Thompson. Edited by Tom Hercock. Additional Research by Jon Park.

“There was a period of remorse and apology for banks.” Quoth Bob Diamond, Chief Executive of Barclays Bank. Perhaps he was feeling a little hot under the collar, given popular hatred – is that strong enough a word? – at the banks that helped bring Britain’s economy to its knees and its taxpayers labouring under massive public debt to “recapitalize” them, the polite term for bailing them out. I’m pretty certain that most bankers have not enjoyed being as unpopular as MPs – that’s pretty stiff competition – and would love to go back to the glory days where their bonuses were a sign of prosperity, not piss-taking.

After all, that popular hatred has led to some irritating little attacks on their system. Britain and America have both legislated reforms to the City and Wall Street with the intention of reining in the excesses that are commonly held to have allowed a speculative bubble to develop. In the UK, they now pay extra taxes. This is perhaps why so many are moving to Switzerland.

America resisted major legislative reform to the finance industry, thanks to the Republican filibuster in the Senate and their new majority on the House of Representatives, but they should consider themselves lucky. As bad as Obama might be for bankers, at least they weren’t at the mercy of the Democrats in early nineteenth-century America. Indeed, much of nineteenth-century American politics included technical questions relating to banking (should some war bonds be repaid in paper or specie dollars?) which often took a banker-bashing populist colour.

One late nineteenth-century Democratic pamphleteer is a good example:

Mind, the Government does not get the interest on the bonds; the banker takes interest on the bonds and interest on the Government bills, and the people pay the banker interest, and the banker is a parasite, lives on the people, and gives nothing for it.

How familiar is that?

It’s hard to get interested in the banking debates over the Second Party System, even if self-proclaimed Democrat Sean Wilentz and neo-Whig Michael Holt have made careers out of reliving the politics of the American Early Republic. President Andrew Jackson came out of these debates, a semi-illiterate backwoodsman who made a career and a legacy out of anti-intellectualism and rhetorically stringing up America’s bankers.

Jackson’s Democratic coalition first attacked the Second Bank of the United States, which functioned as a privately-owned equivalent of the Bank of England at the time. While Maryland tried to abolish almost all private banks by issuing a hefty tax on non state-chartered banks in 1818, Jackson abolished the “privileges” of the bank’s stockholders in 1832. It was, to his supporters, part of a vast conspiracy: “beyond question that this great and powerful institution had been actively engaged in attempting to influence the elections of the public officers by means of its money.”

Conspiracies are, in fact, quite a worthwhile way to look at American history, and a great many of them involve a greedy and tyrannical, “moneyed power” a cabal active through all of apace and time. Richard Hofstadter in his essay The Paranoid Style in American Politics traced the history of these conspiracies that often involved banking. The John Birch Society, which made McCarthyism look like a moderate and reasonable concern about communist infiltration of the American government, claimed that communists had infiltrated America’s banks and that they had done so to cause the Great Depression. The Populist Party in the 1890s claimed that an international cabal of financiers controlled the world money supply and caused the frequent ‘panics’ that plagued the late nineteenth century. Hofstadter, being fond of attributing political culture to impulses and mindsets, worked this, anti-Catholicism, nativism and anti-communism into a paranoid ‘style’ that defined a large minority of Americans’ politics.

However, many Americans’ attitudes to their banks and their bankers may not have been quite as crazy and irrational as Hofstadter points out – much of it used many of the tropes that Americans applied to other aspects of political life.

The language of dependency was often used in American politics. De Tocqueville had written about America as a land of independent self-sufficient farmers and, regardless of whether eighteenth-century America was actually a consumer society (T. Breen seems to think so) many Americans in the nineteenth century used this language. Thaddeus Stevens’ post-Civil War radical visions for an equal south for poor whites and freedmen involved self-consciously removing their dependence on another for access to land. Upcountry southern yeoman (like Andrew Jackson) resisted the market, for example, by opposing railroad construction in their area and engaging in subsistence farming. 

Banking was just as much caught up in these lines of dependency in a world where bad harvests meant debt, interest and foreclosure. The unscrupulous nature of ‘wildcat’ banks that could print their own currency (as there was no central bank) and go bankrupt didn’t help their reputation in a cash-poor region where the loss of a few notes could deplete much of their savings. Interestingly, the Citizen’s Bank of (French-speaking) New Orleans was particularly reliable, and the French dix on their $10 bill led to the South’s nickname as Dixie.

If being dependant on private banks was bad, being dependant on a government bank was worse. Regardless of how anachronistic eighteenth-century tropes about liberty and dependence on government were by the nineteenth-century, Americans continued to use the language of dependency to attack institutions – like government involvement in currency – that could be used to give private interests the ability to amass more power. The idea of the ‘slave power’ was instrumental in building opposition to the Fugitive Slave Act and the opening up of huge territories to slavery because it seemed to some Americans, many of whom who were lukewarm on blacks’ rights, that slaveholders were able to use the state to amass their own power over everybody else. We see this favourably (one would hope), but to Hofstadter’s mad populists, the logic was the same.

Our bankers are perhaps lucky that they aren’t held responsible for establishing a tyrannical despotism. But perhaps they aren’t out of the woods yet. Hofstadter noted in the sixties that conspiracy theorists attacked the Federal Reserve (America’s Bank of England) in terms not dissimilar to the Jacksons and the Populists of old. Many of them do today, and many of them are active and rising in the rabid Tea Party movement that has defined America’s political agenda. Perhaps Hofstadter was right: they are nutters after all.

*****

“The bank, Mr. Van Buren, is trying to kill me, but I will kill it.” 

Andrew Jackson

Source: The Autobiography of Martin Van Buren

Timeline:

1816 – The Second Bank of the United States was created with a 20 year federal charter

1828 – Democratic candidate Andrew Jackson elected President with 15 states and 56% of the vote, and with a long-standing dislike of any bank not based on gold or silver. This meant the Second Bank of the United States.

1829/1830 – Andrew Jackson makes his constitutional objections, as well as his personal antagonism towards the bankknown.

1832 – In order to make the Bank an election issue, its president, Nicholas Biddle, with support from senators Henry Clay and Daniel Webster, apply for a new charter 4 years before they needed to. Vetoed by Jackson.

Nov. 1832 – Andrew Jackson wins re-election, and with it a mandate to take on the banks.

Oct. 1833 – Jackson ordered all federal deposits in the bank withdrawn. In retaliation, Nicholas Biddle began calling in loans, engineering a financial crisis

1834 – The Whig controlled Senate censures Jackson for his ‘monarchical’ attitude to the banks.

1836 – The bank lost its federal charter, but gains a Philadelphia charter instead.

1837 – Panic of 1837: a speculative crisis linked to the actions of both Jackson and the Bank, causing a five-year depression.

1841 – The Second Bank of the United States closes due to faulty investment decisions.

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