Time for fresh faces on cur­rency: Why An­drew Jack­son needs to go.

The Washington Post Sunday - - BUSINESS - BY STEVEN MUF­SON steven.muf­son@wash­post.com

Few peo­ple would quar­rel with the Trea­sury’s de­ci­sion to honor a distin­guished woman with a spot on one of the most com­monly used bills of Amer­ica’s cur­rency.

But by push­ing aside Alexan­der Hamil­ton’s im­age to make room for a woman on the $10 bill — in­stead of re­plac­ing An­drew Jack­son’s im­age on the $20 bill — the Obama ad­min­is­tra­tion has com­mit­ted a grave his­tor­i­cal in­jus­tice.

Hamil­ton— who will re­main on the bill in a pre­sum­ably di­min­ished role — was a found­ing fa­ther, co-au­thor of the Fed­er­al­ist Pa­pers, Rev­o­lu­tion­ary War staff aide to Ge­orge Washington, first Trea­sury Sec­re­tary and ar­chi­tect of the early Amer­i­can econ­omy.

He set up the first na­tional bank, a fore­run­ner of the Fed­eral Re­serve that would spur in­dus­try, lend the gov­ern­ment money and hold its de­posits. He also ad­vo­cated a na­tional cur­rency.

Jack­son didn’t even like pa­per money, and he pur­sued dis­as­trous eco­nomic poli­cies. Yet the Ten­nessee fron­tiers­man, land spec­u­la­tor, lawyer, slave owner, war hero and sev­enth pres­i­dent will con­tinue to gaze out from the $20 bill.

What did Jack­son get wrong on the econ­omy? Lots. He dis­man­tled the sec­ond Bank of the United States (which he called a “mon­ster in­sti­tu­tion”) and — iron­i­cally given his spot on the $20 bill — re­stricted the use of pa­per money. This lay down the con­di­tions for the Panic of 1837, one of the most se­vere de­pres­sions in U.S. history.

A self-made man, Jack­son long har­bored a deep mis­trust of banks. At the time, there was no Fed­eral Re­serve, nor fed­eral bank notes like those we have to­day. Most Amer­i­cans at the time paid for goods and ser­vices with gold or sil­ver coins or pa­per notes is­sued by pri­vate firms or state-char­tered banks. The value of those pa­per notes fluc­tu­ated wildly.

The Bank of the United States at the time im­posed an el­e­ment of sta­bil­ity. The au­thor­i­ta­tive history text­book “The Great Re­pub­lic” says that “the BUS per­formed many of the func­tions of a truly na­tional bank,” even though it was largely pri­vately owned. It is­sued its own notes, but in lim­ited amounts so their value re­mained sta­ble. Thus its notes, un­like those is­sued by hun­dreds of state-char­tered banks, were ac­cepted by the fed­eral gov­ern­ment as le­gal pay­ment for any money owed.

The BUS also served as a reg­u­la­tory agency, “re­fus­ing to ac­cept notes [from smaller banks] that were not backed by suf­fi­cient re­serves of specie,” the book says.

Fi­nally, the bank’s widely ac­cepted and cir­cu­lated notes eased the chal­lenge of con­duct­ing busi­ness over long dis­tances.

But when he ran for pres­i­dent in 1832, Jack­son waged war on the pri­vate Bank of the United States, call­ing it a mo­nop­oly that made “the rich richer and the po­tent more pow­er­ful.” The mes­sage ap­pealed alike to in­debted farm­ers and land spec­u­la­tors push­ing the young coun­try west ward and eastern banks jeal­ous of the power of the Bank of the United States.

Once elected, Jack­son took the fed­eral gov­ern­ment’s sur­plus rev­enues (yes, a sur­plus!) from the na­tional bank and spread them around sev­eral dozen state-char­tered banks, which is­sued new pa­per notes and loans, feed­ing a spec­u­la­tive boom and in­fla­tion.

But later in his pres­i­dency, Jack­son slammed on the brakes by in­sist­ing on the use of hard­money, or coins, rather than pa­per notes. In 1836, he is­sued a Specie Cir­cu­lar, re­quir­ing pay­ment in coins by pur­chasers of public lands, sharply cur­tail­ing in­fla­tion. In 1836, when the bank’s char­ter needed to be re­newed, Jack­son also ve­toed the bill ap­proved by Congress, say­ing he was tak­ing a stand “against any pros­ti­tu­tion of our Gov­ern­ment to the ad­vance­ment of the few at the ex­pense of the many.”

Jack­son’s con­trac­tionary poli­cies co­in­cided with a drop in in­vest­ment and a sale of Amer­i­can se­cu­ri­ties by Bri­tish firms.

The re­sult? Catas­tro­phe. It would be known as the Panic of 1837. In­vest­ment and em­ploy­ment plunged. A mob of nearly a thou­sand peo­ple sacked ware­houses in New York City. Busi­ness­men in Bos­ton protested re­quire­ments to make pay­ments in hard cur­rency. And banks re­fused to re­deem pa­per notes for hard cur­rency.

The down­turn lasted about four years, throw­ing peo­ple out of work, ru­in­ing many farm­ers and forc­ing the clo­sure of many banks.

We’ve had a lot of pan­ics, de­pres­sions and re­ces­sions since Jack­son’s ter­ri­ble eco­nomic poli­cies. No one has quite solved the boom and bust cy­cle. Yet gov­ern­ment and econ­o­mists know more than Jack­son did 175 years ago. Maybe it’s time to let “Old Hick­ory,” as he was known, re­tire from the field and give the $20 bill a makeover.


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