Lincoln, Gold, and Greenbacks

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When Abraham Lincoln first entered politics in 1832 he announced to Illinois voters that "My politics are short and sweet, like the old woman’s dance. I am in favor of a national bank . . . in favor of the internal improvements system and a high protective tariff." These three things — central banking, protectionism, and what we today call corporate welfare (for the railroad and road-building industries) are what Lincoln would devote the next twenty-eight years to achieving, working tirelessly in the political trenches of the Whig and Republican parties. In doing so he became a master politician, a designation that the founding fathers warned all citizens to be fearful of.

The year 1832 is significant because that was the year of the big showdown over the rechartering of the Bank of the United States between President Andrew Jackson and the bank’s president, Nicolas Biddle. Jackson won the showdown, the bank became defunct, and the Whig Party was created largely in response to it and in response to Henry Clay’s failure to prevail with the "Tariff of Abominations," which would have raised average tariff rates to nearly 50 percent.

A central bank was the potential political lifeblood of the Whig Party, and no one was more devoted to resurrecting it than was Lincoln. As University of Virginia historian Michael Holt writes in his treatise, The Rise and Fall of the Whig Party, during the 1840, 1844, and 1848 elections Lincoln "crisscrossed the state ardently and eloquently defending specific Whig programs like a national bank . . . . Few people in the party were so committed to its economic agenda as Lincoln." In 1848 Lincoln stumped for Zachary Taylor, promising that if he were elected he would revive the central bank. He would continue to criticize Jackson and advocate central banking for the rest of his political career.

In Monetary Policy of the United States Richard Timberlake clearly explained the paramount importance of central banking to the political ambitions of Lincoln and his fellow Whigs: "To the Whigs . . . a national bank was their life — the vital principle — without which they could not live as a party — the power which was to give them power . . . . To lose it, was to lose the fruits of the election, with the prospect of losing the party itself." In other words, the Whigs always intended to use a central bank, and the printing of paper money not backed by gold or silver, as the means of financing massive patronage schemes ("internal improvements") that they hoped would keep them in power indefinitely. This is precisely why the Jacksonians were so opposed to it.

Andrew Jackson and the Bank War

The best published account of the "bank war" between Andrew Jackson and Nicolas Biddle is Robert Remini’s Andrew Jackson and the Bank War. Jackson considered fiat money to be "the instrument of the swindler and the cheat. For Andrew Jackson, hard money — specie — was the only legitimate money; anything else was a fraud to steal from honest men." (Remini, p. 19). Jackson also believed that the doctrine of states’ rights meant that a central bank was unconstitutional. This view was quite pervasive, especially in the South. As Timberlake writes (p. 83): "The states . . . . were properly jealous and fearful of encroachment by the federal government. Since a central bank would necessarily be a federal bank and would maintain and operate state branches from a distant center, proponents of states’ rights found opposition to a national bank almost mandatory."

Jackson suspected that a central bank would be controlled by Northern bankers and would be used to manipulate politics. Remini does point out that the strongest support for the bank came from New England, whereas the fiercest opposition came from Southern politicians like Jackson.

Jackson had good reason to fear political manipulation by a central bank. The first president of the Bank of the United States (BUS) was Navy Captain William Jones, who had no banking experience and who had just gone personally bankrupt. Murray Rothbard blames him for the Panic of 1819 in his book of the same title, which is cited by Remini.

The Second BUS was run by Nicolas Biddle, who continued to politicize the bank in many ways, including granting low-interest loans and "consulting contracts" to politicians who would support the bank’s expansion. Jackson’s Treasury Secretary, Roger B. Taney (the future chief justice of the U.S. Supreme Court) complained of the bank’s "corrupting influence" and "its patronage greater than that of government" for good reason. As Henry Clay biographer Maurice Baxter wrote in Henry Clay and the American System, Clay (Lincoln’s political role model) left Congress for two years in 1822 after having incurred $40,000 in personal debt to become general counsel of the BUS. His income from this caper "apparently amounted to what he needed" to pay off his personal debts, writes Baxter. "When he resigned to become Secretary of State in 1825, he was pleased with his compensation."

Another prominent Whig, Daniel Webster, did not even bother resigning from Congress before collecting bribes. He simply demanded a "retainer" from Biddle "If it be wished that my relation to the Bank should be continued."

Biddle proved Jackson’s charges of political corruption to be correct when, during the 1828 election he spent more than $100,000 of the bank’s money in support of Jackson’s political opponents; promised BUS money to friendly politicians to spend on "internal improvements" schemes; paid for the reprinting of Henry Clay’s speeches in support of the BUS; and paid for newspaper ads that promoted himself and the bank and attacked Jackson.

The U.S. Supreme Court ruled that a central bank was constitutional, but it is important to keep in mind that, prior to the War for Southern Independence, it was not at all universally agreed that the federal government itself should be the arbiter of the limits of its own powers. That is, Supreme Court decisions were viewed by many, including President Andrew Jackson, as mere opinions and not Holy Writ, as they are today. As Jackson said in response to the Court’s decision:

To this conclusion I cannot assent. Congress and the president as well as the Court must each for itself be guided by its own opinion of the Constitution . . . . the opinion of the judges has no more authority over Congress than the opinion of Congress has over the judges, and on that point the president is independent of both. The authority of the Supreme Court must not, therefore, be permitted to control the Congress or the executive when acting in their legislative capacities.

For the next several decades the political battle would continue over central banking, with such advocates of a more centralized and omnipotent state as John Quincy Adams, Webster, Clay, and Lincoln on one side, and John C. Calhoun and the Jacksonians on the other. As Remini writes, "Calhoun argued in favor of a system that would convert the United States to the gold standard exclusively."

The Independent Treasury System

The demise of the BUS led to an alternative banking system known as the Independent Treasury System, which was put into place in 1840, ended by the Whigs in 1841, resurrected in 1846, and ended finally during the Lincoln administration. As Jeffrey Hummel wrote in an essay on President Martin van Buren in Reassessing the Presidency, the Independent Treasury System, under which the only legally recognizable money was gold and silver coins and all currency was redeemable in specie on demand, "ushered in an era of financial deregulation at the national level." It was probably the most stable monetary system in American history, according to Hummel. Timberlake writes that "The Independent Treasury may well appear in retrospect as the optimal monetary-fiscal institution within the basic framework of a gold standard."

Lincoln the Bank Whig

Abraham Lincoln was fiercely opposed to the Independent Treasury System. On December 26, 1839, he gave a speech in opposition to it and in support of central banking in Springfield, Illinois. The speech was Clintonian in length and charged that the system would generate economic instability, be extremely expensive to operate, would be an insecure depository of money, and would "reduce the quantity of money in circulation." These turned out to be red herring arguments.

Lincoln’s speech was quite extreme and even bizarre in some respects. He quite hysterically claimed, for instance, that under a gold and silver standard "All [will] suffer more or less, and very many will lose everything that renders life desirable."

Lincoln was not a religious man, and many of his contemporaries believed he was an atheist. But being a consummate politician he frequently invoked Scripture in his speeches, including this one. "The Savior of the world chose twelve disciples, and even one of that small number, selected by super-human wisdom, turned out a traitor and a devil. And, it may not be improper here to add, that Judas carried the bag — was the Sub-Treasurer of the Savior and his disciples." An Independent Treasury System would supposedly be a "traitor" to the American public just as Judas betrayed Jesus, said Lincoln.

About a year later Lincoln had become a leader in the Illinois legislature and he repeatedly opposed proposals by Democrats to audit the Illinois state bank. In December 1840 the Illinois Democrats wanted to require the bank to make payments in gold or silver instead of paper. The bank was authorized to continue its suspension of specie payment through the end of the year. Lincoln wanted desperately to avoid this outcome, so he bolted for the door and instructed his fellow Whigs to follow him. Without a quorum the legislature could not vote to adjourn, and the suspension of specie payment would continue.

But the door was locked and guarded, so Lincoln literally jumped out of the first-floor window, followed by his lemming-like Whig followers. The Democrats ridiculed him as "Lincoln and his flying brethren," and his stunt failed anyway.

In What Has Government Done to Our Money? Murray Rothbard explained the significance of the phrase, "suspension of specie payment." This explanation clarifies just what it was that Lincoln and the Whigs (and later the Republicans) were fighting so vigorously for.

The bluntest way for government to foster inflation . . . is to grant the banks the special privilege of refusing to pay their obligations, while yet continuing in their operation. While everyone else must pay their debts or go bankrupt, the banks are permitted to refuse redemption of their receipts, at the same time forcing their own debtors to pay when their loans fall due. The usual name for this is a “suspension of specie payments.” A more accurate name would be “license for theft,” for what else can we call a government permission to continue in business without fulfilling one’s contract?

Richard Timberlake was right: The Whig Party failed to revive the BUS and, without an ability to promise taxpayer-financed subsidies to its big business supporters, the party imploded in the early 1850s. Many of the same special interests that had supported the Whig Party then supported the new Republican Party. Lincoln assured his Illinois constituents that there was not policy difference at all between the Whig and Republican Parties.

Lincoln’s Banking Legislation

As soon as Lincoln took office the old Whig coalition finally controlled the entire government. It immediately tripled the average tariff rate, began subsidizing the building of a transcontinental railroad in California even though a desperate war was being waged, and on February 25, 1862, the Legal Tender Act empowered the Secretary of the Treasury to issue paper money ("greenbacks") that were not immediately redeemable in gold or silver. The National Currency Acts of 1863 and 1864 created a system of nationally chartered banks that could issue bank notes supplied to them by the new Comptroller of the Currency, and a 10 percent tax was placed on state bank notes to drive them out of business and establish a federal monetary monopoly. The government’s paper money flooded the banks so that by July 1864 greenback dollars were worth a mere 35 cents in gold.

Ever since the days of Andrew Jackson American presidents had opposed a fiat money system. The Jacksonian opposition to central banking was ended, literally, at gunpoint. Lincoln’s main role was to avoid doing what presidents had done for the previous three decades: veto central banking legislation. There was no chance of that since Lincoln, unlike Jackson and President John Tyler, was a career-long advocate of central banking and fiat money.

Financing the American Empire

The Republican Party establishment, led by Lincoln, was very clear on what it hoped to achieve with a central bank. As Heather Cox Richardson recounts in The Greatest Nation on the Earth: Republican Economic Policies During the Civil War, Senator John Sherman, brother of General William Tecumseh Sherman and chairman of the U.S. Senate Finance Committee, declared, "nationalize as much as possible, even the currency, so as to make men love their country before their states. All private interests, all local interests, all banking interests, the interests of individuals, everything, should be subordinate now to the interest of the Government." This is a perfect rendition of the collectivist philosophy that would plague the twentieth century with its insistence that citizens are to be the mere servants of the state, rather than the other way around.

The sponsor of the banking legislation in the House of Representatives was Congressman Elbridge G. Spaulding, a New York banker. Spaulding clearly argued that the new fiat money system would finally clear the way for the mercantilist system of massive "internal improvement" subsidies. The New York Times published a celebratory editorial on March 9, 1863, in which it said, "The legal tender act and the national currency bill crystallized . . . . a centralization of power, such as Hamilton might have eulogized as magnificent."

Kentucky Democrat Lasarus Powell was not as enthusiastic. "The result of this legislation," he said, "is utterly to destroy the rights of the states. It is asserting a power which if carried out to its logical result would enable the national Congress to destroy every institution of the States and cause all power to be consolidated and concentrated here [in Washington, D.C.]." But of course it would; that was always the intention of The Party of Lincoln.

The Party of Lincoln wanted to transform the American government from the limited, constitutional republic of the founding fathers to an empire that would rival Great Britain’s, and they knew they needed a central bank to achieve that task. Empires are very expensive propositions, as they require sending armies and navies all over the globe. As Richardson explains: "By 1863 the Republicans envisioned a dominant international role for a unified American nation, and [Senator John] Sherman promised that the bank bill, with its implicit strengthening of the national government, would advance that goal" (emphasis added). The Republicans under Lincoln "were building a new economic role for an increasingly powerful national government, permanently involving it in the country’s monetary affairs."

This paper was delivered at the First Annual Burton S. Blumert Gold Conference, San Mateo, California, September 14, 2002. Thomas J. DiLorenzo [send him mail] is the author of the LRC #1 bestseller, The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War (Forum/Random House, 2002) and professor of economics at Loyola College in Maryland.

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