public debt at the market price to even out its payment. When Congress declined, Crawford tried a plan whereby holders of debt could exchange their holdings due in 1825 and 1826 for 5 percent stock payable at a later time. Congress agreed, but few exchanges were made. Richard Rush, Secretary of the Treasury in 1825, paid off as much of the debt as the surplus allowed, exchanged a portion for new debt, and continued to pay interest on the remaining debt. By 1828 the total public debt had been reduced to $58.5 million. Despite the accumulation of debt during the War of 1812, the Jeffersonians' debt management program had left the country with less debt than the Federalists had 28 years earlier. Additionally, during this same period the number of Treasury employees increased to 181 in Washington in 1826, with an increase of 894 persons employed in the customs service. 8

Chapter Five

THE AGE OF JACKSON

A Tariff Act of 1832

The financial state of the government was in excellent condition when Andrew Jackson took over as president in 1828. The "Tariff of Abominations" of 1828 had raised the average tax rate on dutiable items to 41 percent. A new tariff act in 1832 reduced the rates on imports, but not enough to placate radicals in the South. A crisis. was set off when South Carolina issued its Ordinance of Nullification, whereby it attempted to declare the Constitution null and void and raised the menace of secession. Jackson countered the Ordinance by taking a forceful stand on enforcing the Constitution as the unbreakable law of the land. It also helped when Congress passed a compromise tariff in 1833, reducing rates further.

To a large extent, the Jackson administration represented a culmination of the agrarian policies started by the Jeffersonians. Under Hamilton, the Federalists wanted a policy wherein the Federal government would foster economic growth through tariffs, internal improvements and central banking. The Jeffersonians were opposed to this system on the grounds that it would lead to a concentration of wealth in a few hands. However, they had learned to accommodate themselves to various components of the policy. Albert Gallatin had written a report on the need for a system of canals and roads and had supported renewal of the First Bank of the United States. By the 1820s, the Hamiltonian policy had been revived as Henry Clay's "American System."

Andrew Jackson remained loyal to the agrarian system. He did not support Federal government funding of internal improvements, and was opposed to the rechartering of the Bank of the United States. Jackson was suspicious of banks and did not trust the paper money that they issued in the form of banknotes. The Bank's charter would expire in 1836, but in 1832 it applied for a renewal

choosing an earlier date for political reasons. The application was approved by both houses of Congress (by 28 to 20 in the Senate and by 107 to 85 in the House). On July 10, 1832, however, Jackson vetoed this approval, and the Bank could not secure sufficient votes to override the veto. 1

Nicholas Biddle and the Bank Fight

Supporters of the Bank hoped to be able to launch a new charter in the four years that the old charter still had to run. But Nicholas Biddle, President of the Bank, undertook several actions that angered Jackson. In August 1833, the Bank sharply reduced its loans, arguing that it was preparing to close. Jackson then announced on September 18, 1833, a policy of withdrawing government funds from the Bank as a means of retaliation. Two successive Secretaries of the Treasury refused to go along with this policy. Attorney General Roger Taney was appointed Secretary of the Treasury. Starting in October 1833, he began depositing fresh government revenues in state banks, the so-called "Pet Banks", while paying expenditures from funds in the Bank. In 1837 the second Bank of the United States was liquidated. The Federal government's original investment was returned along with a profit. 2

The government did not really need the extra revenue at this time, as it was experiencing an influx in revenues which resulted in large surpluses. Annual Federal revenue doubled during the Jackson administration, from $25 to $50 million. As an opponent of Hamilton's view on government debt, Jackson had once proclaimed, "I am one of those who do not believe a national debt is a national blessing." 3 In 1835 the $17.9 million budget surplus was greater than total government expenses for the year; the next year the surplus reached $20.4 million. By January 1835, for the first and only time, all of the government's interest bearing debt was paid off. Secretary of the Treasury Levi Woodbury enthusiastically announced, "An unprecedented spectacle is thus presented to the world, of a Government . . . virtually without any debt. ... A reduction of the budget surplus was not possible without a reduction in taxes, but the compromise that had been reached over

1 Schlesinger, Jackson, 88-90.

2 Schlesinger, Jackson, 103-114.

3 Schlesinger, Jackson, 36.

" 4

4

Secretary, Annual Report, 1835, 643.

the tariff in 1833 would not allow for any tax reduction. Expenditures for internal improvements could have been increased, but Jackson was opposed to these. Ever since his decision in 1830 to veto government funding of the Maysville Road, internal projects had become local matters. Secretary of the Treasury Levi Woodbury thought the surplus should be maintained as a fund to meet future deficits.

Instead, Congress decided to distribute the surplus to the states, many of which were heavily in debt at the time. Therefore, in the early months of 1837, a total of $28 million of the surplus was loaned to the states. No one expected the loans to be repaid. The Jackson administration ended with the country out of debt.