Can you imagine a president taking on the Federal Reserve System today? That’s what Andrew Jackson did in 1832, and it changed America forever.
In the early 19th century, the forerunner to the Federal Reserve was the Bank of the United States. When Jackson became president in 1829, he vowed to curb the Bank’s power over the national economy, calling the institution “a hydra-headed monster… it impaired the morals of our people, corrupted our statesmen, and threatened our liberty. It bought up members of Congress by the Dozen… and sought to destroy our republican institutions.” Today, many free market economists are saying the same thing about the Fed.
The Bank president conspired with friendly members of Congress such as Henry Clay and Daniel Webster to petition for an extension of its 20-year charter in 1832, an election year. They calculated that if Congress approved re-chartering the Bank, Jackson would not risk losing reelection with a veto. They guessed wrong.
In a stern veto, Jackson cited several reasons for refusing to re-charter the Bank:
- It was a dangerously centralized financial power
- It held an unconstitutional monopoly on finance that only helped the rich get richer
- It made the economy vulnerable to foreign and special interests
- It held too much influence over federal politicians
- It favored the North (where most financial centers were located) over the South and West
All of these arguments could be made today against the Federal Reserve System.
Jackson’s opponents thought that the veto would end his career. Again, they guessed wrong as the people sided with him, and he easily won reelection. Emboldened by his victory, Jackson ordered the Treasury secretary to withdraw federal funds from the Bank, which drained the capital that the Bank needed to dole out favors. Without federal funding, the Bank quietly died within a few years.
Jackson’s victory over the Bank decentralized the economy and led to greater economic prosperity and individual freedom through the 1840s and 1850s. However, his devotion to patronage (i.e., granting jobs to political allies) doubled the size of the federal government during his term, which centralized power in Washington at the people’s expense. This chipped into the prosperity and freedom generated by the end of nationalized banking.
Central banking did not reemerge in America until the Civil War, when Abraham Lincoln and the Republican Congress passed a series of laws creating a national banking system. This system was solidified with the creation of the Federal Reserve in 1913.
In the end, the central bank returned in the form of the Fed, and the size of government has increased to record levels, partly thanks to Jackson’s precedent. Thus, individual liberty ultimately lost on both counts.