The American Bank War Spilled Over into Upper Canada
The Leader of the Upper Canada Rebellion, William Lyon Mackenzie, Embraced the Hard Money Views of Andrew Jackson
In my Abstract for Canadian Banking History: A Summary of What I Want to Accomplish with this Blog, I stated that the primary purpose of this blog is to make undergraduate business students excited about studying the history of business and economics. By drawing upon Arthur M. Schlesinger Jr.’s vivid description found in his book, The Age of Jackson, I feel confident recommending the study of the Bank War in the United States to undergraduate business students in Canadian universities. When I read Schlesinger’s description I noticed that this topic not only produced high levels of enthusiasm and engagement in people but it also stimulated intellectuals in such a way that they advanced economic theory. To me, this sounds like the perfect topic to introduce to students (i.e., “intellectuals in training”) in an undergraduate business course. Specifically, Schlesinger wrote that the Bank War in the United States
dramatized currency questions in a way which captured the imagination of the people and excited their desire for further action on the financial front. It enlisted the enthusiasm of intellectuals, stimulating them to further analysis, widening the range and competence of economic theory.1
To make the topic of the Bank War in the United States appropriate for Canadian students in a Canadian business history course, I recommend approaching the topic from the point of view of William Lyon Mackenzie and his involvement with the Upper Canadian Rebellion of 1837-1838. Mackenzie, according to Gerald M. Craig, “had followed with the closest sympathy the efforts of Jackson and the hard-money men to break the power of the banks in the United States, and he was determined to follow their example in Upper Canada.”2 In other words, the key link between what happened in the United States with president Andrew Jackson and what happened in the province of Upper Canada with William Lyon Mackenzie is the rejection of paper money in favor of hard money (i.e., gold and silver).
Mackenzie was deeply influenced by this particular line of thought. According to Schlesinger, the mastermind behind the Bank War in the United States was William M. Gouge. Schlesinger summarized Gouge’s contribution as follows:
The hard-money system owed many of its maxims and dogmas to the Jeffersonians, and much of its vitality to the Northern workingmen who backed it so warmly; but the man to whom, after Jackson, Benton and Taney, it perhaps owed most for its emergence as a constructive policy was William M. Gouge, the Philadelphia editor and economist. Gouge put the hard-money doctrines in the clearest form, furnished the most cogent indictment of the paper system, stated the general problems in a way (unlike the Jeffersonian) relevant to a society where finance capitalism was well entrenched and proved unfailingly resourceful in working out the practical measures to realize his policy.3
The bank war in Upper Canada, which was mainly a war against the Bank of Upper Canada, was clearly influenced by the writings of William M. Gouge. For example, Benjamin G. Rader established the link between William M. Gouge and William Lyon Mackenzie when he wrote:
Interest in Gouge’s analysis suddenly caught fire abroad. In England William Cobbett published an edition under the title, The Curse of Banking in the United States. An abridged French version was published at Brussels, and excerpts appeared in the Westminster Review. A Canadian reformer of the Jacksonian bent, William Lyon Mackenzie, republished extensive extracts and became a die-hard convert to hard money.4
Further evidence clarifies the relationship that existed between Gouge’s thoughts on hard money and Mackenzie’s thoughts on the same issue. According to Lillian F. Gates, Mackenzie saw Gouge’s ideas as an ideal that unfortunately could not be implemented in the province of Upper Canada. Consequently, in practice, William Lyon Mackenzie was forced to fall back onto his second-best plan. Gates explained this nuanced distinction between the ideal plans and the practical plans of William Lyon Mackenzie when she wrote that
Mackenzie regarded Gouge’s system as the ideal one if it could be obtained but he recognized that in Upper Canada this could not be. As a sort of second-best plan he made use of the ideas of Samuel Young. When printing his account of his own testimony given to the Assembly’s Committee on Banking during the panic of 1837, he expressed his ideas in a paragraph taken almost verbatim from Young. Like Young he no longer proposed to exclude paper completely but he thought the amount in circulation should never exceed the amount of specie, and that the circulation of small bills should be prohibited. By this means and by restrictions on bank issues he hoped if not to prevent at least to minimize the contractions and expansions of the currency and the demoralization of business by speculation which (again quoting Young), “have always augmented the wealth of the rich and the poverty of the poor.”5
Pointing out that William Lyon Mackenzie was influenced by “Locofocoism” further clarifies the origins of his ideas about hard money. What united the radical thinkers in the United States with people like William Lyon Mackenzie in Upper Canada was their shared belief that by overthrowing the paper money system they could successfully overthrow the British monarchy. According to Andrew Bonthius, William Lyon Mackenzie was at first critical of Andrew Jackson as president, but Mackenzie later
adopted Jacksonian ideology after a visit to the White House in 1829 and readily embraced its feistier offspring, Locofocoism. He became part of a dispersed fraternity of radical journalists, which included George Evans (Workingman’s Advocate), with whom he exchanged newspapers; William Leggett (The New York Evening Post and The Plain Dealer); and John L. O’Sullivan (United States Magazine and Democratic Review), all of whom were vociferous hard-money, anti-bank exponents. As Gates has noted, Mackenzie and American radical Democrats both saw the Bank of England as the “arch villain” behind the system of paper currency and easily made the connection between the abolition of that system throughout the continent (i.e. the US Bank as well) and deposing the British monarchy.6
Finally, I think it is important to note that, in addition to wanting to overthrow the Bank of England and the British monarchy, the radicals in both the United States and Upper Canada were trying to overthrow the Hamiltonian system. In the history of the United States, the clash between the Hamiltonian system and the Jeffersonian system began in the early days of the new republic. As Schlesinger stated unequivocally, “the hard-money policy was conceived by Gouge and its other champions as a total alternative to the Hamiltonian system.”7 The Hamiltonian system was present in Upper Canada because of mimicry. The Bank of Montreal, “like other Canadian banks to follow it, was closely modelled on the Bank of the United States established at Alexander Hamilton’s urging in 1791, and which in 1816 had just been revived as the Second Bank of the United States.”8 In Upper Canada, William Lyon Mackenzie ferociously attacked the Bank of Upper Canada. He went into a long diatribe against the Bank of Upper Canada denouncing it for having
controlled our elections, corrupted our representatives, depreciated our currency, obliged even Governors and Colonial Ministers to bow to its mandates, insulted the legislature, expelled representatives, fattened a host of greedy and needy lawyers, tempted the farmer to leave his money with it instead of lending it to his worthy neighbour, shoved government through its hands, sent many thousands of hard cash to foreign lands as bank dividends, taxed the farmers and traders at £18,000 a year for the use of its paper, and supported every judicial villainy and oppression with which our country has been afflicted.9
The Bank of Upper Canada, the financial institution so passionately berated by William Lyon Mackenzie, was also modeled after the First and Second Banks of the United States thus the Bank of Upper Canada was an example of the Hamiltonian system at work north of the Canada-US border. The Bank of Upper Canada literally reeked of all of the worst traits of special privilege, including its monopoly protection from competition, its access to all sorts of political connections including the local oligarchy commonly known as “the Family Compact,” and its subsidization out of public funds. I conclude this article with a long passage from Gerald M. Craig’s book because after reading his long description of how the bank of Upper Canada came into being I am confident that you will sympathize with William Lyon Mackenzie and his criticisms of this Hamiltonian inspired bank:
The Bank of Upper Canada, whose charter was not finally confirmed until 1821, had very close connections with the provincial government, on the model of the First and Second Banks of the United States. One-quarter of the stock was to be subscribed by the government, which was also to appoint four of the fifteen directors. Branch offices on the Hamiltonian model were also expressly allowed. The government immediately subscribed its share, but it proved to be impossible to raise the remainder of the required minimum among private subscribers. The charter was then amended to reduce the minimum subscription needed. In effect government funds, taken from monies in the hands of the Receiver General and from the Military Chest supported the Bank. Nine of the directors were either members of the executive or legislative council, or held important offices under the government, and most of the remaining six also became office-holders within a few years. John Strachan’s name led the list of directors. It is no exaggeration to say that the Bank of Upper Canada was a creature of the emerging Family Compact. Moreover, it was a creature which the Compact could carefully protect and foster, since its control of the legislative council allowed it to reject bills passed by the Assembly to establish competing banks. For ten years the Bank of Upper Canada enjoyed a monopoly in the province, except for one or two branches of the Bank of Montreal, which it tried unsuccessfully to freeze out.10
Arthur M. Schlesinger Jr., The Age of Jackson (Boston: Little, Brown and Company, 1945), 115.
Gerald M. Craig, Upper Canada: The Formative Years, 1784-1841, Wynford Project Series (Don Mills: Oxford University Press, 2013), 243.
Schlesinger, The Age of Jackson, 117.
Benjamin G. Rader, “William M. Gouge: Jacksonian Economic Theorist,” Pennsylvania History: A Journal of Mid-Atlantic Studies 30, no. 4 (October 1963): 444.
Lillian F. Gates, “The Decided Policy of William Lyon Mackenzie,” The Canadian Historical Review 40, no. 3 (September 1959): 193-194.
Andrew Bonthius, “The Patriot War of 1837-1838: Locofocoism with a Gun?” Labour / Le Travail 52 (Fall 2003): 27.
Schlesinger, The Age of Jackson, 119.
Craig, Upper Canada, 161.
Craig, Upper Canada, 243.
Craig, Upper Canada, 162.