A Republic No More. Jay Cost
his power to decide who would be the next president, and after a private meeting chose Quincy Adams, who in turn named him secretary of state. While there is no direct evidence of a quid pro quo, the sequence of events rightly prompted nationwide outrage. Historian Harry Watson makes the point that an explicit bargain was not necessary for the outcome to be offensive: “to preserve their consciences in the expected proprieties of the day, the two men probably failed to state the bargain explicitly, but their gentlemen’s agreement had violated the standards of strict Republican morality.”20 But that breach of the public trust had less to do with the growth of government than the decay of the first party system, about which we will have more to say in Chapter Three.
Government growth nevertheless bred many innovative forms of perfidy, which unfortunately would become models for future generations of politicians on the make. Congress, unsurprisingly, had its fair share of scoundrels. The Republican embrace of internal improvements led to congressional logrolling (where legislators agree to support each other’s pet projects), such as with the omnibus rivers and harbors legislation of 1826.21 This meant in practice that Clay’s “American System”—a harmonization of sectional interests into a unified whole—achieved much less coherence than promised.22
Protective tariffs had a similar effect, facilitating regional payoffs and political corruption beyond what was previously possible. The most egregious example involved the aptly named “Tariff of Abominations” in 1828. Recognizing a growing national demand for a new protective tariff, Jackson’s allies in Congress sought to have it both ways. Jackson’s political base in the South did not want a new tariff, but the Mid-Atlantic swing states, especially Pennsylvania, desperately desired new protection; so Martin Van Buren and Silas Wright of New York and James Buchanan of Pennsylvania conspired to draft a tariff so extreme that (they thought) it would inevitably fail. Their tariff proposal layered gift upon gift for this industry and that sector of the economy, especially those situated in the Keystone State. Southern members of the House allowed the bill to pass through the lower chamber, believing that it would be struck down in the Senate, as it contained duties deemed too onerous for New England. But the Southerners miscalculated; after some amendments to make the tariff palatable to the Northeast, it passed through the Congress and was signed into law by President Quincy Adams. The Jacksonians reaped a huge political windfall and the Mid-Atlantic won an enormous economic payoff, but the southern economy suffered.23
Members of Congress not only played fast and loose with the legislature’s taxing and spending powers, they also gladly collected kickbacks from powerful men in society. Perhaps the most notorious, but certainly not the only, legislator on the take was Daniel Webster, the famous orator who for half a century defended American nationalism with an unmatched eloquence. Webster, nevertheless, was an avid speculator with a taste for the finer things in life. He was persistently hard-pressed for money and was more than happy to use his influence for personal gain, as well as tip his friends and family off about public policy that could prove profitable.24 He was not alone. Clay was on the payroll of the Second Bank and Missouri senator Thomas Hart Benton was a legal representative for John Jacob Astor.25 Even presidents were on the hook: Monroe borrowed a tidy sum from Astor during the War of 1812 and was persistently unable to pay back his wealthy benefactor. No matter! Astor eventually leaned on President Monroe to rescind an order prohibiting foreigners from engaging in the fur trade, something that greatly aided his American Fur Company.26
Corruption was rampant in the executive departments as well, especially the Department of War and the all-important Treasury Department, which had oversight over the Second Bank and its state satellites.27 The Second Bank in particular was a cesspool of corruption in its early years. Modeled after its predecessor, most of its directors were picked by private shareholders while the government named a minority.28 The Madison administration chose five solid Republicans for the board and worked behind the scenes to have a Republican crony selected as president.29 That duty fell to William Jones, former secretary of the navy and interim secretary of the treasury. In the latter position, he had proven himself wholly incapable of his duties, but in the former had demonstrated a keen understanding of how the political game worked, doling out patronage to friends, family, and political allies with great skill.30 That, plus his Republican bona fides as well as his residence in Philadelphia (where the Second Bank was headquartered) made him a natural choice. His ignorance of public finance was not a concern.
The administration of Jones, a “corrupt and venal man” as historian Robert Remini describes him, stands in stark contrast to that of Hamilton during his tenure at the Treasury Department.31 In the 1790s, Republicans cried bloody murder about the potentially devastating corruption that could emanate from the Bank, but while venality did spring forth from it, the capable management of Hamilton meant that its broader effects were generally limited. This went a long way to proving the viability of Hamilton’s assumption that a natural aristocracy could handle a large governmental operation, managing and controlling corruption with an eye toward the public good. But what happens when a party functionary is at the helm, rather than a natural aristocrat? The public found out in the first few years of the Second Bank’s operation, as Jones was totally out of his depth, and on the take.
For starters, he and the Second Bank’s directors allowed a clique of stockjobbers to take control of the Baltimore branch, which was robbed of more than $1 million before the truth came out.32 The president of the branch, one of the directors, and the cashier formed a company intent on cornering the market on bank stock with an eye to inflating its price.33 They purchased something on the order of $4.5 million worth of bank stock, financed in part by loans from the Second Bank itself: $1.7 million from the Baltimore branch and $2 million from the Philadelphia headquarters. They also farmed out nominal ownership of the shares to thousands of dummy investors to get around rules limiting how many votes any single investor could have. Ultimately, as few as fifteen people in Baltimore owned three-fourths of the stock there.34 Jones noticed none of this, nor any of the stockjobbing going on all across the country; indeed, he even accepted an $18,000 gift from officers at the Second Bank, which had been made on rampant speculation.35
Worse than this was Jones’s gross mismanagement of the nation’s economy. In theory, the Second Bank’s monopoly over federal deposits gave it control over the state banks, and therefore capacity to regulate credit and even the broader business cycle. In practice, nominating a political hack whose tenure at the Treasury Department was a model of incompetence meant that the Second Bank was part of the problem in the postwar economy.
Following the War of 1812, American exports boomed to meet a growing demand for staples in Europe. Banks all across the country lent generously, and thus a credit-fueled bubble quickly followed. It finally burst in late 1818 when the price of cotton plummeted on the Liverpool exchange, and the forthcoming Panic of 1819 plunged the country into a nasty recession.36 The Second Bank was not the primary culprit for the panic, but it did shoulder some of the burden. If Jones had been an able and sensible manager of the national credit, he could have foreseen what was coming and acted in advance to tighten credit and gain control over the irresponsible practices of the state banks. Instead, he did precisely the opposite, fueling the credit bubble. In August 1817, he waived the requirement that the second installment of payments for Second Bank stock be remitted in specie, or hard coin, enabling investors to retain their shares with very little money down.37 He also did not mandate that the branch banks have fixed capital, meaning that there was no rational credit plan emanating from Philadelphia. Bank branches in the South and West, managed by men whose ignorance of finance matched Jones’s, happily authorized loans that could never practically be paid back.38 By July 1818, the Second Bank’s demand liabilities were $22.4 million compared to just $2.4 million worth of specie in its vaults, double the legal limit.39
At that point, the game was up and the Second Bank initiated a painful contraction of credit that contributed to a depression in prices. Exports, valued at $83 million in 1818, fell to $54.5 million in 1821; import prices fell from $120 million to $54.5 million.40 As historian George Dangerfield notes, “Trade stagnated; the price of staples swooned downwards; real property depreciated and its rents or profits vanished; merchants, even the most reputable, were ruined; and