The Major Accomplishment of the Jacksonian Democrats Was Divorcing the Central Government from the Banking System

At the war’s close the United States could boast higher taxation per capita than any other nation. But all the new and old taxes combined were just sufficient to cover about one-fifth of the Civil War’s monetary cost. Chase therefore borrowed some money directly from the general public, with the aid of an extravagant publicity campaign handled by private financier, Jay Cooke. The Union had to go to the banks for most of its loans, however. And this required that Congress undermine the restraints built into the country’s prewar financial structure.

That structure was the ideological handiwork of the Jacksonian Democrats. Its major accomplishment was divorcing the central government from the banking system. There was no nationally chartered central bank, and the Treasury, as much as possible, avoided dealing with the many state-chartered banks. The only legally recognized money was specie, that is, gold or silver coins. The economy’s currency consisted solely of bank notes redeemable in specie on demand. Private competition thus regulated the circulation of paper money.

Although traditional historians have subjected this era of unregulated banking to trumped-up charges of financial instability, many economists are coming to agree that it was probably the best monetary system the United States has ever had. The alleged excesses of the fraudulent, insolvent, or highly speculative “wildcat” banks were highly exaggerated. Total losses that bank note holders suffered throughout the entire antebellum period in all states that enacted free-banking laws would not equal the losses for one year from today’s rate of inflation (2 percent), if superimposed onto the economy of 1860. Moreover, most of these losses resulted from too much regulation, not too little.

—Jeffrey Rogers Hummel, Emancipating Slaves, Enslaving Free Men: A History of the American Civil War, 2nd ed. (Chicago: Open Court Publishing Company, 2014), e-book.