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The financial product that such banks as Baring Brothers were selling to investors in London, Hamburg, Amsterdam, Paris, Philadelphia, Boston, and New York was remarkably similar to the securitized bonds, backed by mortgages on US homes, that attracted investors from around the globe to US financial markets from the 1980s until the economic collapse of 2008. Like the C.A.P.L. bonds, mortgage-backed securities shifted risk away from the immediate originators of loans onto financial markets while promising to spread out and thus minimize the consequences of individual debtors’ failures. Investors who purchased latter-day mortgage-backed securities planned to share in streams of income generated by homebuyers’ mortgage payments. Likewise, the faith bonds of the 1830s generated revenue for investors from enslavers’ repayments of mortgages on enslaved people. This meant that investors around the world would share in revenues made by hands in the field. Thus, in effect, even as Britain was liberating the slaves of its empire, a British bank could now sell an investor a completely commodified slave: not a particular individual who could die or run away, but a bond that was the right to a one-slave-sized slice of a pie made from the income of thousands of slaves.

Typically, credit brings risk. For the borrower, there is the risk of not being able to pay, and for the lender, the risk that he will not be repaid. The C.A.P.L. model shifted risks away from both the immediate lender—a bank—and the borrower. In fact, the faith bonds shifted, or “socialized,” risk onto two groups of people. The first was the enslaved. Their own hands would have to repay the loans. And if their owners did not pay their debts, the enslaved people themselves would be foreclosed upon.

Second, if neither bank revenue nor foreclosure sales of human collateral could pay back the bondholders, the citizens of the state would have to redeem the bonds with their own taxes. The fact that popularly elected legislatures repeatedly supported such bond schemes is therefore remarkable. After all, many elements of the intensely democratic frontier electorate saw banks as machines designed to channel financial benefits and economy-governing power to unelected elites. But advocates of the new banks often posed as competitors to much-resented factions favored by the hated B.U.S. When Mississippi’s newly democratized legislature considered the possibility of chartering a new bank, its backers insisted that doing so would provide competition to Stephen Duncan’s Bank of Mississippi. That bank’s “aristocratic pack” of supporters “ridiculed the notion of anybody but Dr. Duncan and Gab. Tichenor knowing anything about Banking or even being able to put their feet in a Bank except as petitioners.” Or so claimed a board member for the new institution.

Enhancing the effect of the rhetorical device of posing new banks as democratic blows against established cliques was the sudden increase in opportunities for putting credit to use. After the passage of Indian removal, the US government imposed the Treaty of Dancing Rabbit Creek on the Choctaws, opening 11 million Mississippi acres to sale. Federal treaty-makers’ agreements with the Chickasaw, meanwhile, transferred another 7 million. Potential bank-borrowers imagined what they would do with the land. “A thousand avenues [are] wide open here for money making,” as one Mississippi enslaver wrote, “such as planting shaving paper [buying and selling other people’s debt for profit] or speculating by buying & selling all kinds of property.” Robert Walker, a supporter of the new bank, wrote that “Kentucky’s coming, Tennessee’s coming, Alabama’s coming, Georgia’s coming, Carolina’s coming, Virginia’s coming, and they’re all coming to join the joyous crowd of Mississippians.”⁶⁷

The new banks were bound to find themselves in conflict with the B.U.S. monopoly on financial and monetary control, but the C.A.P.L. showed borrowers, bankers, slave traders, and other entrepreneurs an accessory pathway around Nicholas Biddle. And they traveled in that direction hand in hand with Andrew Jackson and his administration. Jackson supposedly hated all banks, but his policies would lead to explosive growth in both new banks and new lending. Even more ironically, Nicholas Biddle did at least as much as Jackson to create a new financial environment in which C.A.P.L.-style innovations could run as wild as one-eyed men demanded.

From 1828 onward, Biddle had tried to court both Jackson and other southwestern entrepreneurs. Yet neither Biddle’s visits to the Oval Office nor a dramatic surge of B.U.S. credit into southwestern channels changed the minds of the bank’s opponents. These included not only resentful planters, but also radicals like the members of the Philadelphia Workingmen’s Party, who attacked the disproportions of wealth that were emerging in eastern urban centers. The bank’s monopoly control over American credit, complained one “Workie’” spokesman, enabled “some men to live in splendor on the labor of operatives.” Then there were those who still resented the bank’s role in the troubles of 1819, such as Jackson’s close adviser Amos Kendall. Even Baring Brothers, long-term B.U.S. trading partners, were beginning to perceive Biddle’s regulatory power as an impediment to C.A.P.L.-style endeavors.⁶⁸

Biddle’s administration contacts hinted to the bank that an extension of its charter, which expired in 1836, was a real possibility. But Jackson kept his cards close to the vest. By 1832, the uncertainty was driving Biddle crazy, and even though Jackson’s more pro-bank counselors told the bank president to avoid pushing, Biddle made an unwise decision. The suave Kentuckian Henry Clay, Jackson’s inevitable 1832 opponent for the presidency, persuaded the vulnerable Philadelphian to try to back Old Hickory into renewing the bank’s charter before the election. Clay believed he could trap Jackson on a dilemma. If Jackson vetoed the recharter, Old Hickory would lose the electoral votes of pro-bank Pennsylvania. If Jackson signed the bill, he would blur the lines between himself and Clay, blunting the enthusiasm of his most fervent foot soldiers. In June, the Clay-manipulated Senate passed a bill reestablishing the B.U.S. for another twenty years. Southwestern senators split on the issue. Louisiana’s delegation supported it. So did Mississippi’s George Poindexter; B.U.S. loans financed his extravagant lifestyle. But Mississippi’s other senator stood against it, with those of Tennessee and Georgia.⁶⁹

On July 3, the House followed suit with its approval. The next day, Martin Va n Buren, who was replacing Calhoun as the vice-presidential candidate on Jackson’s ballot, found the president sick in bed. The old general squeezed Va n Buren’s hand and struggled to sit upright. “The bank, Mr. Va n Buren, is trying to kill me, but I will kill it,” he said. Back in 1815 at New Orleans, Edward Pakenham had also thought he had Jackson trapped. Pakenham died on a sugarcane field. Over the next week, alternating between his sickbed and meetings with a hard core of anti-bank advisers— Martin Van Buren, Maryland’s Roger B. Taney, and Amos Kendall—Jackson worked up an essay that supported what he was about to do. On the 10th, he announced his veto of the bank recharter.⁷⁰

This was an unprecedented act. No president, opponents would charge, had vetoed an act passed with overwhelming support by both houses, simply because he personally disagreed with the policy it enacted. Yet Jackson asserted an idea of power in a representative government that showed why less wealthy white men supported him with such ferocious loyalty. In the president’s “Veto Message,” he argued that all white male citizens were precisely equal in political rights and power. The government should not favor anyone, and in particular, it should not fulfill the self-interested wishes of the wealthy over the will of the majority. This was no mindless critique of government. He did not agree with, for instance, the “d—d tadpole eating crew,” as one Tennessee Jacksonian called South Carolina’s nullifiers. Instead, said Jackson, if government “would confine itself to equal protection, and, as Heaven does when it rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing.” But in Jackson’s judgment, the bank did “not measure out equal justice.” Instead, it used the government’s favor to make “the rich richer and the potent more powerful.” The federal charter, government deposits in the bank, and monopoly power over the workings of the economy enabled the B.U.S. to make its stockholders “a privileged order, clothed both with great political power and enjoying immense pecuniary advantages from their connection with the Government.”⁷¹

Congress exploded. The reaction was so furious, in fact, that Biddle believed the electorate would punish Jackson at the polls. “One individual,” wrote Biddle, has “opposed his will to the deliberate reflections of the representatives of the people.” And indeed, the fall 1832 election was an epic moment that helped crystallize the coalitions of voting blocs and politicians into modern political parties. Henry Clay’s supporters, outraged at the veto, included the “National Republicans” who had supported John Quincy Adams. They linked up with former Jackson supporters who thought the national bank was necessary and believed that the general’s veto had broken all restraints on the executive branch. Also joining them were supporters of moral and economic improvement who believed that Jackson’s followers ignorantly opposed progress. Young Abraham Lincoln, for instance, was the only reader in his family, the one who left his father Thomas’s farm in the woods. He had walked all the way to the Illinois frontier town of Salem Creek to work in a store and read law. Abraham Lincoln was also the only one in his family who joined the brand new party of Jackson’s opponents: the Whigs.⁷²

Clay’s opponents included most of Jackson’s core constituencies from the 1828 election. In the veto summer their representatives united at the first-ever national convention of the Democratic Party. They included many southeastern and southwestern enslavers who lacked personal connections to merchants and bankers. The Democrats also included small farmers, tenants, and the rural landless of the southern and northwestern frontiers, urban workers, and Robert Potter sitting in the Granville County jail: everyone energized by Jackson’s assertive refusal to accept anything less than white male equality.

The B.U.S. openly subsidized Clay’s presidential campaign. In so doing, it did much to prove Jackson’s points—which Biddle foolishly publicized by having tens of thousands of copies of the Veto Message distributed throughout the country. He thought that everyone who read it would agree that Jackson had produced a “a manifesto of anarchy,” addressed to a “mob.” But when all the votes were cast, Biddle’s “mob”—or, in Jackson’s terms, the “people”—had sustained the president’s veto of the pro-bank Congress, reelecting Jackson by a clear majority in both popular and electoral votes.⁷³

Anyone who understood at the subrational level why Robert Potter’s support increased with each conflict he fought against the Granville County elite would also understand why Clay and Biddle and the B.U.S. went down to inglorious defeat in November 1832. The destruction of the B.U.S. definitively established popular but white-males-only democracy as a winning play in the US political competition. White men forced to the margins of the changing US economy usually chose the Democrats as their political home, and would do so for the next fourteen decades. Frontier enslavers, even if they were outside of the old bank cliques, didn’t want the same kind of democracy that Jackson’s hottest partisans among common white men wanted. But the two groups could cooperate, at least during good times.⁷⁴

Yet even though Jackson believed he was acting to protect opportunity for all white men, his policies repeatedly gave the frontier’s entrepreneurial elite exactly what most of them wanted: more Indian lands, more territories to the west for slavery, free trade for cotton, and, finally, destruction of all limits on their ability to leverage enslaved people’s bodies as credit. The majoritarian philosophy of the new Democratic Party would be fatally alloyed by its commitment to both slavery’s expansion and the unregulated, unstable economy that one-eyed entrepreneurs desired. But in the short term, the 1832 election convinced Jackson that the people now expected him to cut off the Monster Bank’s power to divert the blessings of government to the well-connected. And Jackson’s most fervently populist followers had long been anticipating a moment of confrontation with the nefarious powers who they thought were scheming to steal the independence and equality promised to white men by American citizenship. The B.U.S. charter allowed it to serve as the central bank until 1836, so Jackson pushed his advisers to find a legal or quasi-legal way to move against the bank. Finally, the president ordered Secretary of the Treasury Louis McLane to remove government deposits from the B.U.S. Instead, McLane issued a report showing that Biddle’s staff had managed the deposits judiciously. So Jackson reshuffled his Cabinet. Roger Taney eventually became the secretary of the treasury, and in September 1833 he began to draw down the $10 million in federal money that was still sitting in the B.U.S. account.⁷⁵

Needing somewhere to put federal money, the executive branch decided to distribute it among individual state-chartered banks. “Those which are in hands politically friendly will be preferred,” wrote one of Jackson’s most trusted political operatives. The opposition press called the recipients of federal money the “pet” banks. The Union Bank of Nashville was the chosen “pet” for Tennessee, for instance. It just happened to have been founded by the brother-in-law of James K. Polk, Jackson’s main political lieutenant in the state. The ranks of the “pets” soon expanded to over thirty. While the eastern institutions that received federal deposits were conservative with the new influx of money, banks at the leading edge of southwestern expansion used government funds as an excuse to expand lending dramatically. The Mississippi pets’ directors knew that after land sales in the Chickasaw and Choctaw cessions, government land offices would deposit hundreds of thousands of dollars. Anticipating these new reserves—which were also, they might have remembered, liabilities that could be withdrawn—the banks began to print and lend their own paper money. By late 1833, Mississippi banks had twenty times as much paper floating around the economy as they had gold in their vaults to back it up. From Columbus, Mississippi, a boom town in the state’s northeastern corner, D. W. Jordan chortled, “Here I can make money money ” to his North Carolina relatives. John Knight reported that Natchez cotton was 18 cents per pound. He wanted to buy a woman for his wife, and Isaac Franklin was now charging $1,000 for a well-schooled house servant. “ We shall do well this season,” Franklin wrote.⁷⁶

Back in Philadelphia, however, the Monster Bank still had claws. After Jackson’s withdrawal of the deposits, Biddle fought back. In November 1833, the B.U.S. began to call in all its loans. As he deliberately induced a massive recession, Biddle announced that “the other banks and the merchants may break, but the Bank of the United States shall not.” Businesses closed down. Factories and workshops stood idle. Retail districts had no buyers. The slowdown threatened devastation to heavily leveraged planters and cotton merchants. Interest rates offered to the brokers who flocked to New Orleans every fall to buy the cotton harvest rose to 25 percent. Cotton purchases dropped, pushing the recession up the rivers into the Crescent City’s vast watershed. In Mississippi, wrote one Natchez lawyer, “times are very hard, the mad course of the president has caused more ruin in the country than was ever known before.” Now John Knight watched cotton prices plummet to 9 cents per pound. The price of slaves followed. “I tried every Bank in this City for a check on the North,” wrote a panicked Isaac Franklin from New Orleans, “[but] none will.” “The Bank [here] will not discount a dollar,” confirmed his Natchez allies.⁷⁷

Many blamed Jackson. Elite southwestern Jacksonians turned apostate. Robert Walker, previously one of Jackson’s Mississippi political lieutenants, switched sides. Franklin Plummer was the only holdout, and he was reportedly wavering. Loyalist J. F. H. Claiborne expressed anti-bank views at a public meeting in Natchez, and was physically assaulted and beaten by the mostly wealthy crowd. A torrent of complaints poured into the offices of congressmen. Philadelphia businessman John Wurts wrote a letter imploring James K. Polk to use his “personal and political influence... to provide some remedy to check the impending evil.” From Tennessee, John Welsh warned that “even the enemies of the Bank here freely admit that all this distress may be corrected by a return of the deposits to the U.S. Bank.” Henry Clay, meanwhile, organized the Senate to censure Jackson for removing the deposits. But the president refused to quail. When a delegation of businessmen visited Jackson, he said: “What do you come to me for, then? Go to Nicholas Biddle. We have no money here, gentlemen. Biddle has all the money.” The bank, Jackson believed, was confirming the warnings of his Veto Message. His loyal followers agreed: Jackson loyalist Terry Cahal told James K. Polk that Tennessee Bank allies were squealing that the “mob” was plotting a revolution in which “the rich [will be] plundered by the rabble.” But this kind of talk reinforced the Jacksonian claim that B.U.S. supporters hated white men’s democracy, while Jackson partisans cheered his attack on the bank: “ Crush it forever!! It is a Monopoly which ought not to exist among us.”⁷⁸

The recession winter of 1833–1834 was difficult, but by spring the economy began to cooperate with Jackson. Good harvests in Europe and new supplies of precious metal for circulation in the Western economies raised consumer demand and lowered interest rates. But one of the most significant factors that turned the southwestern economic climate from bank war to boom was the replication of the C.A.P.L.’s slave bonds on a far vaster scale. The new banks began to appear right as the bank war began, starting with the Union Bank of Louisiana in 1832. Structured on the C.A.P.L. model but significantly larger, the bank sold $7 million in “faith bonds” through the agency of the Barings. The proceeds of the faith bonds were to fund the capital-intensive projects of shareholders —in other words, to help them buy slaves—and back a massive commercial credit operation that would help move the annual pile of cotton from steamboat landings to Liverpool docks. By 1834, the Union Bank was taking up a lot of the slack left in New Orleans by the retreat of the B.U.S. In November 1834, it became a pet bank, opening access to another pool of money.

Next, the state legislature established the Citizens’ Bank of Louisiana with $12 million in faith bonds, and then authorized several other smaller institutions (for instance, the Atchafalaya Railroad and Banking Company, capital $2 million). Louisiana’s orgy of bank-creation increased the number of the state’s banks from four to sixteen and expanded the total amount of authorized capital from $9 million to $46 million. By 1836, New Orleans had the densest concentration of banking capital in the country, outpacing Philadelphia and New York and suggesting that Louisiana might become the nation’s financial power center in the near future. The Florida territory, with fewer than 100,000 residents, launched multiple banks, including its own Union Bank, for which it issued faith bonds. Alabama also funded its banking system with bonds, selling most to the Rothschilds of Paris, Europe’s most powerful bankers. In 1832, the total amount of the bank loans available to southwestern borrowers had been under $40 million, including $30 million lent by the B.U.S. By 1837, despite the retreat of the B.U.S, southwestern bank loans soared to more than $80 million— one-third of the national total and more than that of any other region. Southwestern legislatures had authorized significantly more banking capital in the 1830s than what the B.U.S. had earlier applied to the economy of the entire United States.⁷⁹

Image 7.4. An elderly but still pugnacious Andrew Jackson as President, slaying the many-headed Hydra of the nefarious Second Bank of the United States. The head with the top hat is Nicholas Biddle. “General Jackson slaying the many headed monster,” Henry B. Robinson, 1836. Library of Congress.

Although some of the banks were ostensibly chartered to create investment in the state’s infrastructure—including railroads, or, in the case of the New Orleans Gas Light and Banking Company, modern municipal utilities—the major purpose of the splurge was to rush seeds of growth into the fields of southwestern entrepreneurs’ dreams. In the course of a mere four years, from 1833 through 1836, 150,000 enslaved people were moved from the old states to the new. They cleared and planted and harvested millions of new acres, and the US cotton crop doubled in size. Meanwhile, the bonds created by southwestern states—each one a guarantee of an income stream from the labor of mortgaged hands—found buyers in all of the major financial centers of the Western world—London, New York, Philadelphia, Amsterdam, Hamburg, Bremen, and Paris. Investors around the world voted their confidence in slavery’s expansion. And rising London prices for southwestern securities, statistics demonstrate, pushed up slave prices in New Orleans.⁸⁰

The irony is obvious, in hindsight. Andrew Jackson had mobilized common white male anger at arrogant, antidemocratic supporters of the B.U.S. and its allies. He and his followers, from the lowliest voter to loyal congressmen, metaphorically Potterized Biddle and George Poindexter and all the members of the old southwestern bank-vault factions that had monopolized frontier opportunity and tried to tell ordinary citizens to keep quiet. In fact, cartoons of the day even depicted Jackson chopping off the penile snakeheads of a hydra-headed Monster Bank.

Yet the destruction of the B.U.S. and the ensuing deployment of banking innovations didn’t make the southern financial environment more democratic. For instance, when Franklin Plummer, the champion of the people of southeastern Mississippi, visited Natchez before the 1835 state elections, men who ran the new banks bought him a fancy carriage. Plummer then reversed his rhetoric against the use of state power to deliver bank goodies to insiders and campaigned for a slate of pro-bank candidates. When elected, these pro-bank state legislators sent Robert Walker to Washington as senator, deposing George Poindexter from office. Walker had depicted Poindexter as the servant of the Monster Bank, an arrogant opponent of white male equality. Now he and Plummer encouraged the Mississippi legislature as it chartered so many banks that by 1839 the state’s total on-paper bank capitalization was $63 million—more than the national B.U.S. at its largest. And old insiders managed to remain insiders. Stephen Duncan, leader of the old Natchez-based Planters’ Bank, launched a new bank, which the state legislature chartered. Henry Clay wrote his Mississippi allies in 1834, asking a Duncan ally to give his son a loan so that he could buy a Mississippi cotton plantation: “I have a number of surplus slaves here, principally young and well adapted to a cotton plantation.” Banker and planter were often the same: ten of the top eleven borrowers from the Union Bank of Florida were members of its board of directors, or immediate relatives thereof. While some charters required new institutions to distribute loans in a more geographically equal fashion than had predecessor banks, the new banks did nothing different from the B.U.S. when it came to distributing credit to lower-class men. Thus, those who had derived political benefit from common white men’s insistence on equal manhood replaced the B.U.S. with an insider-favoring banking system.⁸¹

“The people” thought they had slain the monster, but the stumps sprouted new heads that feasted on the huge sums of capital being imported via European sales of state bonds that securitized slave mortgages. All of these innovations planted a crop of dramatic consequences. Securitization’s ability to export risk away from the immediate lender enabled unregulated borrowers to expand leverage without end. Here’s how the equation worked. In 1835, a cousin told Anna Whitteker that “each of his hands made $500 last year, raising cotton” in Mississippi. If remotely true, that kind of revenue would mean a return of over 30 percent per year. Enslavers with access to bank credit could now borrow money on slaves at 8 percent. The margin between anticipated returns on borrowed capital and its cost to borrow was thus huge. And the direct risk appeared to be negligible. State-guaranteed slave-mortgage bonds dispersed much of the immediate risk of borrowing to others—to bondholders, to taxpayers, and, above all, to the enslaved. In addition, entrepreneurs themselves—including judges, politicians, and state officials—controlled debt collection in their states, making it less likely that elite borrowers would be foreclosed, even if they fell behind on payments. Banking elites had the recourse of socializing the losses—making the whole population pay off the debts of failed enterprises—just as the old Plummer (pre-carriage) and the old Walker (pre–bank war) had once warned. So as enslavers multiplied their leverage, they multiplied their revenue without increasing their individual risk. In response to these clear incentives, enslavers created still more ways to leverage slaves into still more leverage. They mortgaged the same collateral from multiple lenders. They used slaves bought with long-term mortgages to bluff lenders into granting unsecured commercial loans. Above all, they kept buying more slaves on credit. Even if they ran into problems, they figured they would still win, because they could sell their assets. For the slave prices were still rising.⁸²

Yet the consequences of seemingly infinite and risk-free leverage were perverse, and not just because sexual predation helped stoke the risk-taking atmosphere. Securitization enabled both the immediate borrower and the immediate lender to escape the direct consequences of risk—economists call this “moral hazard”—even as they dramatically increased the total risk accumulated in the financial system. The multiplication of total leverage dramatically amplified the general consequences of a potential setback, such as a sudden decline in the cotton prices by which enslavers multiplied pounds picked per hand to calculate anticipated revenue. Yet by late 1834, few were thinking about such possibilities. The biggest boom yet seen in the history of slavery’s expansion began to swell as money from the new southwestern banks seeded the region with enslaved hands ready to meet a sudden increase in European demand. In 1832, cotton brought 9 cents per pound. By 1834, a woman reported from the Huntsville slave market, “cotton [at] 13 cents... has turned their heads.” In 1835 cotton hit an ecstasy-inducing 18 cents per pound. And demand for slaves kept soaring. “I have just returned from Charlottesville court, great many buyers[,] and negroes was scarce and high,” reported Rice Ballard’s employee from a buying trip along the Blue Ridge Mountains.⁸³

“People here are run mad with speculation,” wrote one visitor to the former Chickasaw land in northeastern Mississippi. “They do business in... a kind of phrenzy [ sic ]. [Gold] is scarce, but credit is plenty.” In 1835, government land offices in Mississippi sold 2.9 million acres, more than had been sold in the entire nation in 1832. A few found frenzy worrisome. “ We have not yet reached the neighborhood of a sufficiency of Banking Capital—but taking this as true I would prefer to approach the point gradually, and not with such rapid strides,” wrote a Louisiana man in 1835, after the legislature chartered four banks in two days. Cheap land was vanishing, wrote a migrant to newly organized Noxubee County, Mississippi. “Speculators and cappitalist [ sic ] all have an idea to it. I have never in my life seen such a rush for land.” Next, he predicted, came the forced migrants—“this country will be a perfect negro quarter”—who, underfed by gambler planters, “will kill your pigs hogs and cows, I feal the effects of it already.”⁸⁴

But the tunnel vision of one-eyed men seemed to be working. Banks were lending, and land bought by speculators at the government minimum of $1.25 sold at $20 per acre. The clanking of chains rose from the roadways leading into the courthouse towns; entrepreneurs looked at their ledgers, at bales stacked by the landing, and at the men and women trudging out to the springtime field; light-skinned women stood in front of tables where traders poured their drinks and negotiated a price. Prosperity trickled credit further down the chutes and slides of the southwestern economy into the pockets of slaveholders, overseers, and random white men with smooth tongues. Like Anne Royall cresting the hill and rounding the Alabama bend back in 1819, most white southwesterners thought they could see, spread out before them, a glorious future shining in a bubble. It looked like that first day when ten thousand little seedlings in the cotton field had obviously become a host of young plants. The green muscled its way upward, into the sight of the slave owner’s focused eye. Who knew how miraculous the crop of his seed might become?

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