Episode 761: The Bank War

Mar 24, 2017

Banks and governments have been fighting each other for hundreds of years, but never more dramatically than during the showdown between President Andrew Jackson and Nicholas Biddle, the president of the Second Bank of the United States.

Jackson was a populist, who rode to victory on promises to wrest control of the country from the East Coast elite. He was angry at the power structure, and he was furious at the banks. To him, they were the phantom controllers of the economy, issuing spurious scripts that often vanished with the banks when they collapsed.

Biddle was pretty much the opposite of Jackson, raised in the one of the country's earliest aristocratic families. He was a poetical kid and a classics scholar, who started Princeton when he was 17. He believed in banks and he believed that a well run bank would serve the nation and create stability.

In the 1830s their two views of the nation collided, with disastrous and long-ranging results.

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JACOB GOLDSTEIN, HOST:

Robert Smith, there are two sides to this war. Which side do you want to be? You want to be Andrew Jackson or Nicholas Biddle?

ROBERT SMITH, HOST:

Biddle, of course. He's way better.

GOLDSTEIN: OK. I'll do Andrew Jackson. When Andrew Jackson was 13 years old, he went off to fight the British in the Revolutionary War.

SMITH: When Nicholas Biddle was 13 years old, he transferred from the University of Pennsylvania to Princeton.

GOLDSTEIN: Jackson was a poor kid. His father was an Irish immigrant who died before Jackson was born.

SMITH: Biddle was a rich kid, part of Philadelphia society.

GOLDSTEIN: By age 15, Andrew Jackson is an orphan, basically alone in the world.

SMITH: By age 15, Biddle graduated at the top of his class from Princeton. And with the help of family connections, he sails off to Europe to take the grand tour.

GOLDSTEIN: Andrew Jackson kills a man in a duel, leads a heroic battle in the War of 1812.

SMITH: Nicholas Biddle edits a literary journal called Portfolio, writes under the pen name Oliver Oldschool.

GOLDSTEIN: Finally, of course, Andrew Jackson becomes president of the United States.

SMITH: And Nicholas Biddle becomes president of the Bank of the United States.

GOLDSTEIN: At the peak of their careers, Biddle and Jackson get into a fight. Jackson wants to kill Biddle's bank.

SMITH: And Biddle wants to kill Jackson's presidency.

(SOUNDBITE OF BARRY LANGTON, DAMON BUTCHER, DEBBIE TAYLOR, HARBANS SRIH AND WINSTON BLISSETT SONG, "BEEN A LONG TIME")

GOLDSTEIN: Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.

SMITH: And I'm Robert Smith. Today on the show we're going to tell you a 200-year-old story because it's just a delightful, amazing story. There's a rich banker. There's a populist president who hates the elites. And there is a panic in the streets.

GOLDSTEIN: And this fight between Andrew Jackson and Nicholas Biddle - in a way, it's still going on today. It's a fight over who gets to control money in America.

(SOUNDBITE OF BARRY LANGTON, DAMON BUTCHER, DEBBIE TAYLOR, HARBANS SRIH AND WINSTON BLISSETT SONG, "BEEN A LONG TIME")

SMITH: Right in the middle of the city of Philadelphia - and you can see it to this day - there is a building that looks like the Parthenon. It's big. It's made of stone. There are so many columns.

GOLDSTEIN: So many columns.

SMITH: So many columns.

GOLDSTEIN: Definitely more columns than it needs.

SMITH: In the 1820s, this building was the center of the American financial world. It was the Bank of the United States.

GOLDSTEIN: And the Bank of the United States in the 1820s was unlike anything we have in this country today. In fact, it was unlike anything else they had in the country back then. There were lots of little local state banks, but the Bank of the U.S. was the only bank in the country that operated all over the country. It was created by an act of Congress that gave it a monopoly to do that. The federal government kept its money there, did its banking with the Bank of the U.S. But the Bank of the U.S. was a private corporation answerable to its shareholders, run for a profit.

SMITH: And inside this Greek building, in the very back, in a giant office was a man with his fingertips stuck together and a thousand-yard stare.

GOLDSTEIN: Sitting on a throne...

SMITH: Sitting on a throne.

GOLDSTEIN: ...Made of the bones of Alexander Hamilton.

SMITH: Nicholas Biddle, the president of the Bank of the United States.

GOLDSTEIN: In any movie of this, Biddle would be the villain.

CORDELIA FRANCES BIDDLE: Oh. Oh, you hurt me saying that.

(LAUGHTER)

GOLDSTEIN: This is Cordelia Frances Biddle, Nicholas Biddle's great-great-great-granddaughter.

BIDDLE: You're right.

GOLDSTEIN: It's not personal. You know (unintelligible).

BIDDLE: (Laughter) Well, I take it personally because I'm writing about him.

GOLDSTEIN: It's not even personal to Biddle, though. Like, do you know what I mean? It's just structurally - he's, like, the rich banker. Like, of course he's the villain.

BIDDLE: Of - you're absolutely right. And I would've - I would've said that four years ago (laughter).

GOLDSTEIN: Yeah. And you're a Biddle.

BIDDLE: And I'm a Biddle.

GOLDSTEIN: Cordelia's opinion about her whatever, great-great-great-grandfather, it changed when she learned something important about him. She learned that Nicholas Biddle was really good at his job as, you know, head of the Bank of the U.S. And that was really good for the U.S. in a bunch of different ways.

SMITH: The Bank of the United States was doing a lot of the economic stuff that today is the job of the federal government and the Federal Reserve. So for one thing, the Bank of the U.S. back then printed paper money. At the time, official government money was just gold and silver coins. The government didn't make any paper money as we know it. And if you took your gold coins to a local bank, that bank would give you a piece of paper with the bank's name on it, sort of like an IOU, a claim check. You or anyone else could turn that into the bank to get your gold back. These bank notes became functionally money.

GOLDSTEIN: Almost all the banks in the country did this. But because the Bank of the U.S. was the only national bank, its bank notes were way better, right? You could use them anywhere in the country.

SMITH: And that made it much easier to do business all around the country. You could get a bank note in New York City, spend it in New Orleans.

GOLDSTEIN: There was another thing the bank did for the country under Biddle that was really important. It cushioned economic booms and busts. Today, that is what the Federal Reserve does. That's the job of the central bank. But the Fed didn't exist back then. It wasn't even created until the 20th century. So Biddle would be there, you know, working in Philadelphia. And if the economy seemed a little anemic, a little slow, he could make more loans. He could make it easier for people to borrow money.

SMITH: And if the economy seemed a little overheated, maybe saw a bubble out there on the horizon, he could make it harder for people to borrow money.

GOLDSTEIN: It was an incredible amount of power. And having all of this power put Biddle at the center of this small club of elites who were running America.

BIDDLE: And he is great friends with all the presidents - with Adams, with Madison. And you can see even just through his diary writings he loved being in this position.

SMITH: He loved being a banker so much he wrote a poem about it.

GOLDSTEIN: You ready?

SMITH: I'm ready.

GOLDSTEIN: Here's a couplet. (Reading) I prefer my last letter from Barings or Hope.

SMITH: Barings and Hope are banks.

GOLDSTEIN: So (reading) I prefer my last letter from Barings or Hope to the finest epistles of Pliny or Pope.

SMITH: Who are writers.

GOLDSTEIN: Yes, writers. Maybe it's Pliny? Pliny the Elder? Don't know.

SMITH: (Laughter).

GOLDSTEIN: The point being he was not much of a poet. He was really good at banking. Nicholas Oldschool Biddle had found his thing, running the Bank of the United States. He figured he'd do it forever.

SMITH: There was only one thing standing in his way - Andrew Jackson.

H W BRANDS: As far as I can tell, Jackson is the only person who would become president of the United States to have killed a man in cold blood.

GOLDSTEIN: This is H.W. Brands. He's historian at the University of Texas. And he said, you know, Jackson was not in Biddle's club where you pal around with former presidents and write poems about banking. He was in the club of people who shot at each other in duels. He told us about this time that Jackson demanded a duel from Charles Dickinson, a man who had made the bad choice of insulting Andrew Jackson's wife.

BRANDS: He stood and took a bullet from Dickinson. The bullet lodged itself quite close to Jackson's heart, but it just missed, in part because Jackson was a skinny guy and he was wearing this sort of large overcoat. And with that bullet next to his heart, Jackson leveled his pistol and shot Charles Dickinson, mortally wounded him. He died several hours later.

SMITH: You know, people loved these kind of stories about Andrew Jackson. I mean, he was the original - he could stand in the middle of Fifth Avenue, shoot somebody and not lose voters. In fact, he was elected president in 1828.

GOLDSTEIN: And, you know, today, Jackson is this - is this really very controversial figure, right? He may be best known now for the horrific way he treated Native Americans. But at the time, that was not the way people saw Jackson. They saw him as this - as this man of the people.

SMITH: And that he was bringing the people with him into the White House. I mean, quite literally. There are these stories about his inauguration party where there's pails of liquor and it's crowded and people are breaking glasses and spilling...

GOLDSTEIN: People are, like, rushing the people bringing the whiskey punch out and it's, like, knocking it over.

SMITH: And it got so out of hand they had to move the whiskey punch out onto the front lawn just to get people out of the White House.

GOLDSTEIN: It's classic solution. No more booze in the house.

SMITH: And like any good populist, Jackson did not like banks.

GOLDSTEIN: In his particular case, he even hated paper money. He thought the country should just be run on gold and silver, which was not, like, some crazy fringe view at the time. I mean, to get your head into it, think about the way a lot of people feel now about, like, all the sketchy mortgage products that banks cooked up in the housing bubble of the 2000s. That is how a lot of people thought about paper money back then.

SMITH: And for good cause. I mean, banks in the 1800s would all of a sudden just go out of business. And the bank notes, their IOUs for gold...

GOLDSTEIN: The paper money.

SMITH: ...Would be worthless.

GOLDSTEIN: So imagine, then, how Jackson felt about a Bank of the United States with special powers granted by the federal government.

BRANDS: It was a private bank. It had its own board of directors. And people increasingly thought that this thing, this national bank that operated at the behest of the government ought to be answerable to the government. But this bank of the United States was not answerable to the government.

SMITH: So you have a president who hates banks, who has literally killed another human being. And Nicholas Biddle decides he's going to go visit him.

GOLDSTEIN: And it's shockingly cordial. Jackson says to Biddle - here's the quote - I do not dislike your bank any more than all banks.

SMITH: In other words, it's not personal. I just think what you do is a total scam that is bad for America.

GOLDSTEIN: And then Biddle says, well, I'm very much gratified at this frank explanation.

SMITH: In other words, thanks for not shooting me. Let's not do this kind of meeting ever again.

GOLDSTEIN: And then after the meeting, Biddle's, like, telling his friend about Jackson. And he calls Jackson's ideas about banking, quote, "the honest though erroneous notions of one who intends well."

SMITH: In other words, I take Jackson seriously but not literally.

GOLDSTEIN: But Biddle knows trouble is coming. The Bank of the United States, it has to be reauthorized every 20 years. Just to stay in business, Congress has to pass a bill and the president has to sign it into law. Otherwise the bank is done for.

SMITH: And so Biddle comes up with this plan. He is going to go on the offensive. He figures people are kind of liking the Bank of the United States. Jackson's up for re-election. I'm going to push this bill now, get it quickly before Congress and put pressure on Andrew Jackson to renew my precious bank charter.

GOLDSTEIN: So Biddle pulls together this army of supporters in Congress - you know, powerful politicians, well-connected politicians. And his - like, his star player in Congress is the senator from Massachusetts, Daniel Webster.

SMITH: If you were alive in the 1820s you would be so excited right now.

BRANDS: When Daniel Webster rose to speak, Washington stopped doing what it was doing and people flocked to the Senate to listen to Daniel Webster. It was high drama. It was wonderful entertainment. And you could be educated in the process. What people didn't generally know, though, was that Daniel Webster was on a retainer with the Bank of the United States, that he was...

SMITH: Wait, he getting paid by the bankers?

BRANDS: Yeah, he was getting paid by Nicholas Biddle personally to - well, to represent the bank while he was a senator for Massachusetts.

GOLDSTEIN: Is that legal? Was that legal? Could you do that?

BRANDS: It wasn't illegal.

SMITH: So the great orator and paid shill Daniel Webster rises to speak. He says, many of you, many of you, including our dear president, do not like banks printing all of this paper money. And I get it. I get it. You want safe and sound money.

GOLDSTEIN: And he says, OK, if you want safe and sound money - and who doesn't? - the Bank of the United States is good.

SMITH: Huzzah.

GOLDSTEIN: The Bank of the U.S. is your friend...

SMITH: Huzzah.

GOLDSTEIN: ...Because the Bank of U.S. is a cautious, conservative bank. You know, it doesn't just run around printing paper money like crazy. In fact, it reins in all of those state banks.

SMITH: He says - and I do quote here - in the absence of a Bank of the United States, the state banks become effectively the regulators of the public currency. Their numbers, their capital and the interest connected with them give them a power which nothing is competent to control.

GOLDSTEIN: In other words, Webster is saying if you think the Bank of the United States is shady and out of control, you should see the state banks.

SMITH: And the Senate buys it. Congress passes a law to give Biddle's bank another 20 years of life. Biddle's in Washington, D.C., for the event. He gets cheered inside the Capitol. He throws a party that goes late into the night.

GOLDSTEIN: And then on July 4, as it happens, 1832, that bill lands on Jackson's desk for him to sign into law.

SMITH: Jackson looks at it, considers it for a moment and says, oh, hell, no.

GOLDSTEIN: Not a direct quote, but Jackson does veto the bill. And in fact, he writes this famous veto message, like, this populist document that says in part when the laws make the rich richer and the potent more powerful, the humble members of society have a right to complain of the injustice of their government.

SMITH: The Bank of the United States will be no more.

GOLDSTEIN: And Biddle actually thinks at this moment, I've got him right where I want him. He thinks this veto is going to cost Jackson the election. He calls him, like, a panther biting at the bars of his cage. And he pays to reprint thousands of copies of this veto message to use as, like, an attack ad.

SMITH: And he miscalculated. People loved the veto. They loved the veto message, right? The humble members of society, the people's president overruling a corrupt Congress to fight elite bankers. I mean, you cannot lose with that. Jackson wins re-election in a landslide.

GOLDSTEIN: Five years later, the economy of the United States is completely destroyed.

SMITH: Yeah, about that - remember all that stuff that Daniel Webster was paid to say? It all came to pass. After the Bank of the United States disappeared, the government had to find a place to put its money. Jackson, populist that he was, says, OK, let's send the money out to all the state banks, state banks all over the country.

GOLDSTEIN: The state banks start lending money like crazy, printing paper money, fueling this massive land boom that turns into a massive bubble.

SMITH: Which means more loans, more money, people buy more land.

GOLDSTEIN: And Andrew Jackson's like, wait, wait, wait. This was not the plan. I wanted less paper money. So he makes this last-minute change and requires that some land purchases be made not with paper money but with gold.

SMITH: Yeah, but nobody has gold. And so there is this panic.

GOLDSTEIN: It is the biggest financial crisis in U.S. history to this point.

SMITH: The economy crashes so hard the government itself can't get its gold out of the state banks. And this isn't just a financial problem. This is an entire economic collapse. People lose their jobs. There's not enough money around. There's not enough food.

GOLDSTEIN: In fact, researchers have gone back and they've figured out that children who were born during the Panic of 1837 grew up to be shorter than people who were born before.

SMITH: They were malnourished.

GOLDSTEIN: The panic caused them to go hungry, presumably.

SMITH: As for Nicholas Biddle, he had to watch not only this crisis play out around him, but he had to watch his bank, his organization that he had built crumble to nothing. The Bank of the United States, his glorious building in Philly, gets a new name, the Bank of the United States of Pennsylvania.

GOLDSTEIN: Ouch. It's just another state bank now.

SMITH: Just another state bank. And even that goes bust in the panic.

GOLDSTEIN: Cordelia Biddle told me that at the end Nicholas Biddle, this man who had, you know, palled around with presidents, he just kind of disappeared from public life.

BIDDLE: I mean, it really is a very sad end because here's this man who felt that he'd devoted his life to his country and he's sent packing. It's terrible.

SMITH: For the next 70 years the United States goes from panic to panic. And even after the United States government created a true central bank, the Federal Reserve in the early 1900s, even then this fight continued in some form.

GOLDSTEIN: Yeah. I think that's because of something really essential about money itself. You know, money is like this utility. We all need it. We all use it. It's created by the government.

SMITH: But you need more than just the government. Every successful economy has private banks. It's the market that connects savers with borrowers to decide who should get a loan.

GOLDSTEIN: And this gives banks this, like, spooky power over our lives. They control money.

SMITH: Freaked out Jackson, it freaks out people to this day. It freaks me out to hear you say that.

GOLDSTEIN: And, you know, you see today's famous senator from Massachusetts, Elizabeth Warren, arguing with some bank CEO and it feels connected to this, right? After doing this story, I don't think anymore, oh, this is just some, like, temporary fight that's happening because of the financial crisis. You know, I don't think there's some utopia or some steady state even where everybody's like, oh, great, the government is going to get this power over money and banks are going to get that power over money and it's done. We worked it out. I don't think that. I think this fight over money between the government and banks, this is our system. The bank war is never going to end.

(SOUNDBITE OF DAMON BUTCHER, DEBBIE TAYLOR AND HARBANS SRIH SONG, "LOVE TO GO")

SMITH: Every great history story has a few small footnotes. We're going to do footnotes for the show in just a minute.

(SOUNDBITE OF DAMON BUTCHER, DEBBIE TAYLOR AND HARBANS SRIH SONG, "LOVE TO GO")

GOLDSTEIN: You can email us at planetmoney@npr.org, or you can get in touch with us on Facebook or Twitter. Our show today was produced by Sally Helm. Special thanks to Jessica Lepler and Liaquat Ahamed, both of whom talked to me for a long time about banking in the early part of the 19th century.

SMITH: Also, you should tell a friend about a podcast that you love. Maybe it's PLANET MONEY. Maybe it's one of my favorite podcasts. I like "Tuner."

GOLDSTEIN: I'm a fan of the "Bodega Boys." Whatever you like, put it on social media and use the hashtag #trypod, T-R-Y-P-O-D.

(SOUNDBITE OF BELL)

GOLDSTEIN: Footnotes.

SMITH: Footnote number one - it is an enduring mystery how a president like Andrew Jackson who hated paper money got his face on the $20 bill. We believe Nicholas Biddle would have been a better choice.

BIDDLE: He thought that he was very handsome.

GOLDSTEIN: (Laughter) Of course he did.

(LAUGHTER)

GOLDSTEIN: Do you think he was handsome?

BIDDLE: For the period, yes.

GOLDSTEIN: (Laughter) I don't even know what that means.

(SOUNDBITE OF BELL)

SMITH: Footnote number two.

GOLDSTEIN: When you're talking to a historian about this show...

SMITH: And you will.

GOLDSTEIN: ...And you want to sound smart...

SMITH: And you will.

GOLDSTEIN: ...You should refer to Biddle's bank as the Second Bank of the United States because America tried this whole thing before with the First Bank of the United States. It existed from 1791 to 1811.

SMITH: We would have told you that story, but it's less interesting.

GOLDSTEIN: Not necessarily. It failed to get rechartered by a single vote in the Senate.

GOLDSTEIN: OK, OK, OK. Footnote number three.

(SOUNDBITE OF BELL)

SMITH: Our last footnote regarding the Panic of 1837.

GOLDSTEIN: Yeah, there's a book I read working on the show called "The Many Panics Of 1837," which points to the fact that there was a lot going on. We didn't talk about all the details in the show. You know, contributing factors included changes in credit in England. One historian has argued that actually changing demand for opium in China contributed to the panic. I don't understand it exactly, but it has to do with, like, silver from Mexico and Britain's trade with India. I don't know.

SMITH: That's amazing.

GOLDSTEIN: It's deep - we're deep in the - we're deep in the weeds here. But it's certainly fair to say that the end of the Second Bank of the U.S. played an important role in the Panic of 1837. I'm Jacob Goldstein.

SMITH: (Laughter) I feel we need a footnote to the footnote. I'm Robert Smith.

GOLDSTEIN: Thanks for listening.

(SOUNDBITE OF DAMON BUTCHER, DEBBIE TAYLOR AND HARBANS SRIH SONG, "LOVE TO GO") Transcript provided by NPR, Copyright NPR.