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.
See also:
References:
Atack, Jeremy, and Peter Passell. 1994. A New Economic View of
American History.
Schlesinger, Arthur M., Jr. 1945. The Age of Jackson.
