America’s Stunning Growth Under the Second National Bank
By Anton Chaitkin
The following is an excerpt from a longer article, published in 2012, on the industrial progress of the United States which Andrew Jackson acted to destroy. It describes the collaboration between the Bank, state and local governments, the military, and President John Quincy Adams during his term in office. Footnotes have been removed. The article is published with Mr. Chaitkin’s permission. He can be reached at firstname.lastname@example.org–Nancy Spannaus, April 5, 2018
An overwhelming public majority supporting them, the nationalists now proceeded with the program that would create modern times in America.
House Speaker Henry Clay led the Congress in 1824 in passing a serious protective tariff and the General Survey Act, authorizing the President to assign Army engineers to civil works of national importance.
The Philadelphia circle of Nicholas Biddle and Mathew Carey founded the Franklin Institute, for scientific research in aid of rapid industrialization, and set up a companion group, the Society for the Promotion of Internal Improvements. Simultaneously, in 1824, Clinton and his supporters founded the Albany Institute for the same ends, making the outstanding scientist Joseph Henry its curator.
Under Biddle’s guidance, the Society for Internal Improvements sent architect and civil engineer William Strickland carry out industrial espionage in the British Isles. Strickland had designed the classically beautiful Philadelphia headquarters building for the Bank of the United States, modeled on the Parthenon of Athens. With the help of American sympathizers in Ireland, England, and Wales, Strickland accomplished his foreign mission brilliantly, getting designs of British transport and industrial properties and devices, despite the Empire’s hostility against such leaks.
The compilation of Strickland’s “Reports on Canals, Railways, Roads, and Other Subjects, Made to the Pennsylvania Society for the Promotion of Internal Improvement” was published in 1826 by Mathew Carey’s son Henry C. Carey and Henry’s partner Isaac Lea. This volume provides us an overview of the problems that American engineering sought to overcome in changing the face of the continent and the nature of the economy, with illustrated chapters on canal construction, tunneling, iron forges, the use of coal, and experiments with steam locomotives.
In the 1825 Presidential election, in which none of the candidates—John Q. Adams, Henry Clay, Andrew Jackson, and William Crawford—received a majority of the electoral votes, the choice was thrown into the House of Representatives for a decision, in accordance with the Constitution.
It is most notable that the Van Buren machine did not back Andrew Jackson in 1824. Jackson had no known principles and was publicly unidentified except as a military hero; there was some speculation that he might be put at the disposal of nationalists. Van Buren promoted Treasury Secretary William Crawford, a free-trader from Georgia who had little influence in the Monroe Administration, and who did poorly in the Presidential election.
Jackson received 39% of the electoral votes (there were very few popular votes counted), to Adams’ 32% and Clay’s 14%. Thus Adams’ and Clay’s combined total of 46% exceeded Jackson’s, and the only known anti-nationalist, Crawford, got only 16%. Nationalist John C. Calhoun was unanimously elected Vice President.
The U.S. Congress chose Adams as President. Adams then appointed Henry Clay Secretary of State. At this juncture Samuel Swartout, Burr’s arranger in London, advised Jackson he had been robbed. The cry of a corrupt bargain rang out as a declaration of war, and the anti-nationalist political wheels began spinning around Jackson.
John Quincy Adams’ March 4, 1825 inauguration was the start of one of the most intense periods of economic progress in history.
Canals and roads were pushed through, opening up the West to settlement, funneling new-mined coal to shops and cities, and creating entirely new Midwestern centers of industry.
The iron industry, under tariff protection, was reborn after a century of imperial suppression.
Railroads began military-designed construction and grew quickly from nothing to thousands of miles.
Financing and planning of these enterprises was coordinated by Federal, military, state, and local authorities.
The Bank of the United States drove the program forward with credit regulation that throttled down parasitical speculation and directed public and private investment funds into infrastructure and industry. Researchers affiliated with the Bank-military-government leadership team did pioneering work with engines and electricity that led to spectacular advances later on.
We will highlight here some of the strategic successes of this era.
In July 1825, New York’s Erie Canal was nearing completion. Gov. De Witt Clinton was in Ohio, joining that state’s leaders in breaking ground for the two great canal projects that would complete the first water route from the Atlantic to the Mississippi River system. The Ohio and Erie Canal cut south from Lake Erie through the eastern section of the state, to the Ohio River, giving birth to the cities of Cleveland and Columbus. The Miami Canal connected the Ohio River at Cincinnati with the western end of Lake Erie, creating the city of Toledo.
On the Ohio Erie Canal, the toll was $12 for a 300-mile shipment of 1,000 pounds of flour, bread, wheat, seeds, soap, wool, carpentry goods, or plows; $6 for 1,000 pounds of fertilizer; $3 for 1,000 pounds of iron ore or coal; and $3 for 1,000 shingles. A passenger traveling 300 miles paid $1.50.
The J.Q. Adams Administration put through Congress an allotment of hundreds of thousands of acres of land for sale to aid Ohio in financing these canals.
The Engineering Board under General Bernard surveyed routes for Ohio’s Erie Canal; other canal routes surveyed were: the Dismal Swamp Canal, the Chesapeake and Ohio, Alleghany and Susquehanna, Susquehanna and Schuylkill, Delaware and Raritan, Buzzards Bay and Barnstable Bay, and the Narragansett and Boston Harbor canals.
At the 1828 dedication commencing Federal construction of the Chesapeake and Ohio Canal (from Washington, D.C. to the Ohio River), President Adams turned the first spade of earth and reminded the celebrants, “The Lord of the universe … said unto them, be fruitful, and multiply … and replenish the Earth, and subdue it. . . . [We] perform His will in the subjugation of the Earth for the improvement of the condition of man.”
New Jersey chartered the vital Morris Canal, which had been projected in 1820 by General Swift. Governor Clinton’s political partner Cadwallader D. Colden moved to New Jersey to be the project’s president. The Bank of the United States undertook sponsorship as a national priority, seeing the canal through to epoch-making success.
The Morris Canal traversed the state of New Jersey, from the Delaware River across from Pennsylvania’s coal-mining country, up through Newark to Jersey City on the Hudson River, across from Manhattan. Cheap coal streamed into the shops of the New Jersey industrial-urban corridor that was built up on the canal banks. The cheap fuel poured into New York City, whose real wealth came as a giant manufacturing hub. Iron ore from northern New Jersey was delivered, in return, to Pennsylvania’s booming iron foundries.
The state of Pennsylvania, lobbied by Nicholas Biddle and Mathew Carey, invested millions of dollars beginning in 1825 for a system of canals connecting the coal-mining regions with the cities and the Atlantic ports. Canals were also built linking Western Pennsylvania, notably Pittsburgh, to the new agro-industrial powerhouse in Ohio. In later years, the Bank of the United States sponsored the creation of the Reading Railroad (the Bank owned a fourth of the railroad’s stock), especially for the purpose of transporting anthracite coal to market.
The American coal-mining industry began as a direct result of these projects. Commercial production of anthracite rose from 409 tons in 1820, to 215,000 tons in 1830, and soon afterwards, to millions of tons annually. Bituminous coal flourished later, after the achievement of technical progress in smelting iron and steel.
A talented young German economist named Friedrich List, who had been imprisoned under the British-Hapsburg domination of Europe, emigrated to Pennsylvania. List helped develop the coal mines there as entrepreneur and inventor. He studied and worked closely with Carey and Biddle on tariff and financial strategy. Returning to Europe in 1830, List created Germany’s first railroad, and succeeded in joining the German states into a tariff union, the first step to nationhood. List’s published work on the American System of economics, and that of Henry C. Carey, would inspire nationalists in Ireland, Germany, Russia, Japan, India, Mexico, and South America to rebel against British imperial free trade doctrines that otherwise condemned them to eternal backwardness.
Under the authority of the 1824 General Survey Act, President Adams assigned Army engineers to work with new, privately owned railway companies. Military men surveyed and designed the routes for the nation’s first 60 or so railroads.
The West Point Foundry turned out the first American locomotives. The Best Friend of Charleston and the West Point were built for the South Carolina Railroad and Canal Company, charted in 1827; and the De Witt Clinton, for the Mohawk and Hudson Railroad, chartered in 1826.
Adams ordered a dozen or more Army engineers to plan and supervise construction of the first commercial railroad, the Baltimore and Ohio, to link the Atlantic port of Baltimore with the Ohio and Mississippi rivers. The B&O builders used Army administrative and accounting procedures. Disciplined Army methods, disseminated in railway publications and adopted by other companies, made American railroads punctual and uniquely effective.
Baltimore’s community leaders financed the B&O by selling $3 million in company bonds to private investors, and $1.5 million worth to the city of Baltimore. The state of Maryland later granted the railroad $500,000; Maryland and Baltimore bought $6 million in B&O bonds. The line reached Wheeling (now in West Virginia) thanks to a $500,000 subscription from the city of Wheeling.
State and local governments provided more than half of the overall capital invested in early American railways. Most private capital came from small investors—merchants, local manufacturers, farmers, and tradesmen—on the route of a proposed railroad. The New York stock market played no role, until New York financiers later bought up lines and treated them as speculative instruments, with unwholesome results.
General Swift’s son-in-law George Washington Whistler was a talented West Point graduate and Army engineer, on the B&O and many other projects. In the 1840s, Swift and Whistler arranged with the Russian ambassador to send Whistler to Russia. He built that country’s first railroad, from Moscow to St. Petersburg, cementing the alliance between Russia and America.
Benjamin Franklin and his Junto had nurtured foundries in colonial Pennsylvania. The 1750 British Iron Act prohibited foundries, and they were discouraged by early 1800s U.S. free-trade policy, by British dumping following the War of 1812, and by the 1819 tight-money depression.
With government encouragement, and tariff protection from 1824 and 1828 legislation, national iron production rose from 20,000 tons in 1820 to 200,000 tons by 1832.
But Americans still stoked their little iron furnaces with local forest-wood, restricting output and freedom of location. At that time, 200 bushels of charcoal costing $10 could produce one ton of raw iron (“pig iron”). Two tons of anthracite coal costing only $5 could potentially produce the same ton of iron.
The Franklin Institute offered gold medals to the manufacturer of the greatest amount of iron made with anthracite, and silver medals for research into anthracite steam generation, and to inventors of anthraciteusing boilers. The Institute’s research leader was Alexander Dallas Bache, Franklin’s great-grandson, and the grandson of Madison’s Treasury Secretary Alexander Dallas, who had revived the Bank of the United States in 1816.
Graduating from West Point in 1825 as an Army engineer, Bache began research at the Franklin Institute around 1828. Early on, he specialized in steam boiler development, and his collaboration in the development of electricity and geomagnetism would have profound global results.
A $5,000 prize for anthracite iron was offered personally by Nicholas Biddle and Henry Carey’s publishing partner Isaac Lea.
The Biddle prize was awarded in Pottsville, Pa. to Pioneer Furnace, put in blast in 1839, using pure anthracite and iron ore. In January 1840, Biddle and Lea awarded the prize, and Biddle spoke to the banquet celebration of America’s industrial victory.
The Bank: Gyroscope of Economic Progress
The credit of the United States was good, internally and abroad, because the country loaned and invested its credit into physically productive enterprises that created far more future real wealth than was expended to build them. Everyone prized the debt (bonds) and notes (currency) that the nation emitted for this purpose, because the system of self-government, based on the progress and improvement of the population, was obviously the most stable possible.
The American Founders designed the Bank of the United States to manage that Constitutional credit system. No “monetary system” is legal under the Constitution, and no civilization can durably survive governed by a financier oligarchy hostile to the improvement of man’s condition.
Congress in 1816 had chartered the Second Bank of the United States for 20 years, with $35 million capital, $7 million supplied by the government. This was a substantial sum, compared, for example, to total money then in circulation (about $75 million) or the annual Federal revenues (around $20-25 million, mostly from customs duties).
The U.S. President appointed five directors, while stockholders chose the other 15. The President nominated the Bank’s president, with the directors’ formal acceptance. The Bank was an object of intense public attention, was legally subject to Congressional scrutiny, and could have its charter revoked if it violated the public trust. Any foreign holder of the bank’s stock was explicitly barred from voting his shares.
Biddle managed the Bank of the United States so as to elevate the power and living standards of the United States. During that period of amazing transformation, economic growth was uninterrupted, and there was a stable national currency.
The Bank invested directly in canals, railroads, roads, and coal and iron enterprises, and loaned money to states and cities engaged in such projects. An investigation of the Bank carried out in 1841 by financier-stockholders hostile to Biddle, has left on the public record faint traces of the Bank’s direct investments under his management. Some of the Bank’s loans mentioned are given in Table 1. (not included)
Of more importance to national progress than its direct investments, the Bank managed credit so that investments from within the United States and from overseas constantly flowed into needed and productive activities. Biddle managed Bank intervention in markets to stabilize prices of commodities and securities, to weather financial disturbances, and protect farmers, manufacturers, and infrastructure under construction.
All of this would have been to no effect, had the Bank of the United States not kept speculators from destroying the economy.
By its charter, the Bank received and protected the deposits of the U.S. government’s funds, primarily customs duties. An importing merchant would pay the amount due at the New York or other Customs depot. Customs officials would immediately deposit this payment in the New York or other branch of the Bank of the United States.
Often the merchant would pay with circulating notes from some private or state bank, which were allegedly redeemable in gold or silver by the issuing bank. Biddle and his staff, vigilant against unsafe speculative emissions or outright fraud, might take notes quickly back to the issuing bank and demand the promised “hard money” payment. Note and credit issuers were thus held to reasonable banking practices, protecting the government and the entire community.
Biddle was the chief public official managing national economic development, in conjunction with the President and the Congress. The critical observer will notice the striking difference between the purpose of that banking function, and that of today’s Federal Reserve Bank, which drains all wealth into the global speculative whirlpool.
The successful nationalist policy of 1815 to the 1830s propelled the economy into new powers over nature and new realms of technology and skill. But for the United States to continue in this direction was incompatible with the survival of the British Empire. There was an explosion….