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Chapter 7 - While Congress Dozes in the Poppy Fields

Jackson believed in a strong Presidency and a strong union. He
stood up to the bankers on the matter of the bank, which he viewed as
operating mainly for the upper classes at the expense of working people.
He warned in 1829:
The bold efforts the present bank has made to control the
government are but premonitions of the fate that awaits the
American people should they be deluded into a perpetuation of
this institution or the establishment of another like it.
Whether Congress itself had the right to issue paper money, Jack-
son said, was not clear; but “If Congress has the right under the Con-
stitution to issue paper money, it was given them to be used by them-
selves, not to be delegated to individuals or to corporations.” His grim
premonitions about the Bank appeared to be confirmed, when mis-
management under its first president led to financial disaster, depres-
sion, bankruptcies, and unemployment. But the Bank began to flour-
ish under its second president, Nicholas Biddle, who petitioned Con-
gress for a renewal of its charter in 1832. Jackson, who was then up
for re-election, expressed his views to this bid in no uncertain terms.
“You are a den of vipers and thieves,” he railed at a delegation of
bankers discussing the Bank Renewal Bill. “I intend to rout you out,
and by the eternal God, I will rout you out.” He called the bank “a
hydra-headed monster eating the flesh of the common man.” He
swore to do battle with the monster and to slay it or be slain by it.9
In the 1832 election, Jackson ran on the Democratic Party ticket
against Henry Clay, whose party was now called the National
Republican Party. Its members considered themselves “nationalists”
because they saw the country as a nation rather than a loose
confederation of States, and because they promoted strong nation-
building measures such as the construction of inter-state roads. Clay
advocated a strongly protectionist platform that kept productivity and
financing within the country, allowing it to grow up “in its own
backyard,” free from economic attack from abroad. It was Clay who
first called this approach the “American system” to distinguish it from
the “British system” of “free trade.” The British system was supported
by Jackson and opposed by Clay, who thought it would open the
country to exploitation by foreign financiers and industrialists. To
prevent that, Clay advocated a tariff favoring domestic industry,
congressionally-financed national improvements, and a national bank.
More than three million dollars were poured into Clay™s campaign,
then a huge sum; but Jackson again won by a landslide. He had the

Web of Debt

vote of the people but not of Congress, which proceeded to pass the
Bank Renewal Bill. Jackson as promptly vetoed it. Showing how
eloquent the self-taught could be, he said in his veto bill:
There are no necessary evils in government. Its evils exist only
in its abuses. If it would confine itself to equal protection, and,
as Heaven does its rains, shower its favor alike on the high and
the low, the rich and the poor, it would be an unqualified blessing.
In the act before me there seems to be a wide and unnecessary
departure from these just principles. Many of our rich men have
not been content with equal protection and equal benefits, but
have besought us to make them richer by act of Congress. . . . If
we can not at once, in justice to interests vested under
improvident legislation, make our Government what it ought to
be, we can at least take a stand against all new grants of
monopolies and exclusive privileges, against any prostitution of
our Government to the advancement of the few at the expense
of the many . . . .
Jackson succeeded in vetoing the bill, but he knew that his battle
with the Bank was just beginning. “The hydra of corruption is only
scotched, not dead,” he exclaimed. Boldly taking the hydra by the
horns, he ordered his new Treasury Secretary to start transferring the
government™s deposits from the Second U.S. Bank into state banks.
When the Secretary refused, Jackson fired him and appointed another.
When that Secretary refused, Jackson appointed a third. When the
third Secretary proceeded to do as he was told, Jackson was trium-
phant. “I have it chained,” he said of the banking monster. “I am
ready with screws to draw every tooth and then the stumps.” But
Biddle and his Bank were indeed only scotched, not dead. Biddle
used his influence to get the Senate to reject the new Secretary™s nomi-
nation. Then he threatened to cause a national depression if the Bank
were not rechartered. Biddle openly declared:
Nothing but widespread suffering will produce any effect on Congress.
. . . Our only safety is in pursuing a steady course of firm
[monetary] restriction “ and I have no doubt that such a course
will ultimately lead to restoration of the currency and the re-
charter of the Bank.
Biddle proceeded to make good on his threat by sharply contract-
ing the money supply. Old loans were called in and new ones were
refused. A financial panic ensued, followed by a deep economic de-
pression. Biddle blamed it all on Jackson, and the newspapers picked

Chapter 7 - While Congress Dozes in the Poppy Fields

up the charge. Jackson was officially censured by a Senate resolution.
The tide turned, however, when the Governor of Pennsylvania (where
the Bank was located) came out in support of the President and strongly
critical of the Bank; and Biddle was caught boasting in public about
the Bank™s plan to crash the economy. In April 1834, the House of
Representatives voted 134 to 82 against re-chartering the Bank, and a
special committee was established to investigate whether it had caused
the crash.10
In January 1835, in what may have been his finest hour, Jackson
paid off the final installment on the national debt. He had succeeded
in doing something that had never been done before and has not been
done since: he reduced the national debt to zero and accumulated a
surplus.i The following year, the charter for the Second Bank of the
United States expired; and Biddle was later arrested and charged with
fraud. He was tried and acquitted, but he died while tied up in civil
Jackson had beaten the Bank. His personal secretary, Nicholas
Trist, called it “the crowning glory of A.J.™s life and the most impor-
tant service he has ever rendered his country.” The Boston Post com-
pared it to Jesus throwing the moneychangers out of the Temple. But
Jackson, like Jesus, found that taking on the moneychangers was risky
business. “The Bank is trying to kill me,” he said, “but I will kill it!”
He was the victim of an assassination attempt, but both the assassin™s
shots missed.11
Abraham Lincoln would not be so lucky . . . .

Recall that President Clinton™s balancing of the budget did not include

paying off the national debt, which stood at $5 trillion in 2000.

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Chapter 8

“With the thoughts you™d be thinkin™,
“You could be another Lincoln,
“If you only had a brain . . . .”
“ Dorothy to the Scarecrow (1939 film)

L ike the Scarecrow who wound up ruling Oz, Abraham
Lincoln went from hayseed to the top of his class by sheer
native wit and determination, epitomizing the American dream. Fol-
lowing in the footsteps of Andrew Jackson, he rose from the back-
woods to the Presidency without ever going to college. Lincoln™s
mother could barely read. Like Jackson, Lincoln risked life and limb
battling the Money Power; but the two Presidents had quite different
ideas about how it should be done. Jackson had captured the popular
imagination by playing on the distrust of big banks and foreign bank-
ers; but in throwing out the national bank and its foreign controllers,
he had thrown out Hamilton™s baby with the bath water, leaving the
banks in unregulated chaos. There was now no national currency.
Banks printed their own notes and simply had to be trusted to redeem
them in specie (or gold bullion). When trust faltered, there would be a
run on the bank and the bank would generally wind up closing its
doors. Bank-fed speculation had collapsed much of the factory sys-
tem; and federal support for road, canal and railway construction
was halted, halting the pioneer settlement of the West along with it.
Lincoln was only 24 when he joined the fight as an Illinois state
legislator to continue the pioneering internal improvements begun by
Henry Clay and the National Republicans. The National Republicans
were now called “Whigs” after the British Whigs, the party in opposi-
tion to the King. Jackson had taken such unprecedented powers to

Chapter 8 - Scarecrow with a Brain

himself that he had come to be called “King Andrew,” making the
American opposition party Whigs by extension. The “Illinois Improve-
ment Program” of Lincoln™s home state centered on construction of
the Illinois-Michigan canal and a 3,000-mile railroad system. The re-
sult was an unbroken transportation line from the Hudson River to
the Great Lakes and the Mississippi River. Lincoln also joined the
movement to restore the country™s financial, industrial and political
independence by restoring a national bank and a national currency.1
When the Whig Party disintegrated over the question of slavery,
Lincoln joined the Republican Party, which was created in 1854 to
oppose the expansion of slavery into Kansas. It opposed the political
control exerted by southern slave owners over the national government;
maintained that free-market labor was superior to slavery; promised
free homesteads to farmers; and advanced a progressive vision
emphasizing higher education, banking, railroads, industry and cities.2
Lincoln became the first Republican candidate to be elected President.
Both Jackson and Lincoln were targets of assassination attempts,
but for Lincoln they started before he was even inaugurated. He had
to deal with treason, insurrection, and national bankruptcy within
the first days of taking office. Considering the powerful forces arrayed
against him, his achievements in the next four years were nothing
short of phenomenal. His government built and equipped the largest
army in the world, smashed the British-financed insurrection, abolished
slavery, and freed four million slaves. Along the way, the country
managed to become the greatest industrial giant the world had ever
seen. The steel industry was launched, a continental railroad system
was created, the Department of Agriculture was established, a new
era of farm machinery and cheap tools was promoted, a system of
free higher education was established through the Land Grant College
System, land development was encouraged by passage of a Homestead
Act granting ownership privileges to settlers, major government
support was provided to all branches of science, the Bureau of Mines
was organized, governments in the Western territories were established,
the judicial system was reorganized, labor productivity increased by
50 to 75 percent, and standardization and mass production was
promoted worldwide.
How was all this accomplished, with a Treasury that was
completely broke and a Congress that hadn™t been paid themselves?
As Benjamin Franklin might have said, “That is simple.” Lincoln
tapped into the same cornerstone that had gotten the impoverished
colonists through the American Revolution and a long period of
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internal development before that: he authorized the government to
issue its own paper fiat money. National control was reestablished
over banking, and the economy was jump-started with a 600 percent
increase in government spending and cheap credit directed at
production.3 A century later, Franklin Roosevelt would use the same
techniques to pull the country through the Great Depression; but
Roosevelt™s New Deal would be financed with borrowed money.
Lincoln™s government used a system of payment that was closer to the
medieval tally. Officially called United States Notes, these nineteenth
century tallies were popularly called “Greenbacks” because they were
printed on the back with green ink (a feature the dollar retains today).
They were basically just receipts acknowledging work done or goods
delivered, which could be traded in the community for an equivalent
value of goods or services. The Greenbacks represented man-hours
rather than borrowed gold. Lincoln is quoted as saying, “The wages of
men should be recognized as more important than the wages of money.”
Over 400 million Greenback dollars were printed and used to pay
soldiers and government employees, and to buy supplies for the war.
The Greenback system was not actually Lincoln™s idea, but when
pressure grew in Congress for the plan, he was quick to endorse it.
The South had seceded from the Union soon after his election in 1860.
To fund the War between the States, the Eastern banks had offered a
loan package that was little short of extortion “ $150 million advanced
at interest rates of 24 to 36 percent. Lincoln knew the loan would be
impossible to pay off.4 He took the revolutionary approach because
he had no other real choice. The government could either print its
own money or succumb to debt slavery to the bankers.

The Wizard Behind Lincoln™s Curtain

Lincoln™s economic advisor was Henry Carey, the son of Matthew
Carey, the printer and publisher mentioned earlier who was tutored
by Benjamin Franklin and tutored Henry Clay. Clay was the leader of
the Philadelphia-based political faction propounding the “American
system” of economics. In the 1920s, historian Vernon Parrington called
Henry Carey “our first professional economist.” Thomas DiLorenzo,
a modern libertarian writer, has called him “Lincoln™s (and the
Republican Party™s) economic guru.” Carey was known around the
world during the Civil War and its aftermath, and his writings were
translated into many European and Asian languages.

Chapter 8 - Scarecrow with a Brain

According to Parrington, Carey began his career as a classical
laissez-faire economist of the British school; but he came to believe that
American industrial development was being held back by a false
financial policy imposed by foreign financiers. To recognize only gold
bullion as money gave the bankers who controlled the gold a lock on
the money supply and the economy. The price of gold was established
in a world market, and the flow of bullion was always toward the
great financial centers that were already glutted with it. To throw the
world™s money into a common pool that drained into these financial
capitals was to make poorer countries the servants of these hubs. Since
negative trade balances were settled in gold, gold followed the balance
of trade; and until America could build up an adequate domestic
economy, its gold would continue to drain off, leaving too little money


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