On 11 July 1936 President Andrew Jackson issued an executive order, called the Specie Circular, requiring payment in specie (gold and silver coins) for all government lands sold to the public. The government no longer accepted bank notes in sales of government land. The Specie Circular actually came from the pen of Senator Thomas Hart Benton, who unsuccessfully advanced a Senate resolution with the same intent. Jackson and Benton were both “hard currency” advocates, and Benton had supported Jackon’s veto of the rechartering of the Second Bank of the United States. As the bank war raged in the Senate, Benton thundered:, “Gold and silver is the best currency for a republic, … it suits the men of property and the working people best; and if I was going to establish a working man’s party, it would be on the basis of hard money; a hard money party against a paper party” (Schlesinger, 1945).
With the demise of the Second Bank, banking regulation was strictly in the hands of state governments. The proliferation of banks and the multiplication of bank notes fed a wave of inflation and a speculative frenzy in land. Banks in the East made loans on the condition that bank note proceeds were use to pay for land in the West, maximizing the chance that the bank notes would not find their way back to the lending bank for redemption. By accepting the bank notes in payment for land the government—in effect guaranteeing that bank notes could be redeemed in land—was underwriting the banking system. Benton roared in the Senate: “I did not join in putting down the Bank of the United States, to put up a wilderness of local banks…. I did not strike Caesar to make Anthony master of Rome” (Schlesinger, 1945).
The speculative frenzy hit the skids in 1837 and Jackson’s Specie Circular may belong with the immediate agents that brought down an overextended banking system. By increasing the demand for specie in payment for land, the government forced banks, which now found it more difficult to maintain specie reserves, to contract bank note circulation.
Atack, Jeremy, and Peter Passell. 1994. A New Economic View of American History.
Schlesinger, Arthur M., Jr. 1945. The Age of Jackson.