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Definition of a Specie:
Specie is coined or
metallic money, as opposed to paper money.
Andrew Jackson regarded specie as hard money. He disdained paper money and made an effort to limit its use. Jackson believed only gold and silver coins minted by the US Treasury should be included in the nation’s money supply. This view would later drastically limit the money supply since the United States had few domestic sources of gold and silver. When Andrew Jackson became the seventh US president in 1829, banks were creating their own bank notes. The banking system was regulated by the Second Bank of the United States. The bank was a private interest, but was charged with controlling the US currency and acting as the Federal government’s fiscal agent.
Andrew Jackson viewed the Second Bank as being against the ordinary citizen. Instead, the bank served the interests of the wealthy businesses in the East. Senator Henry Clay and bank president Nicholas Biddle believed they had a better chance extending the bank charter prior to the 1832 election than at the end of Jackson’s second term of office. Henry Clay also believed this issue could propel him to the presidency when he ran against President Jackson in 1832. Clay fought hard to pass a resolution extending the bank’s charters, only to be vetoed by President Jackson. The issue became highly contested during the campaign of 1832. After winning in a landslide, Jackson chose to withdraw all Federal funds from the Second Bank and deposit them in “pet” state-chartered banks. This action for all practical purposes negated its influence. The Second Bank’s charter was not renewed in 1836 and the bank continued as a state chartered bank in Pennsylvania, only to declare bankruptcy in 1841.
When President Jackson terminated the Second Bank, there was little regulation, and the state chartered banks issued paper notes without the backing of specie. State chartered banks had minimal regulation, and some were very aggressive in the loans they made. Between 1834 and 1836 the sale of public lands increased 500 percent. Many transactions were paid for with paper money provided by state banks and not backed by specie. Inflation rose to 6.6% in 1836, largely attributable to the rapid growth of the money supply. (1836 had the highest inflation rate between 1815 and 1862.) Jackson believed the problem was paper money and issued The Specie Circular on July 11, 1836. It required that only specie could be used to purchase government owned lands. The objective was to restrain the enormous growth in circulation and creation of paper money backed by state banks. This increased the demand and price for specie, which devalued paper currency. The average farmer had to purchase specie at inflated prices from the local bank to acquire land. Following the specie circular the number of land transactions dropped dramatically. The impact was to dramatically decrease the money supply and help push the nation into the Panic of 1837, and a period of deflation. Prices fell 5.9 percent in 1838.