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In august 1814 the gov ernments of the southern

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tion of the Southern banknotes into gold. In August 1814, the gov- ernments of the Southern states officially allowed the suspension of redeemability at Southern banks. The Southern inflation prompted calls for another national bank, the Second Bank of the United States, which, among other tasks, would bring the Southern banks into line by beginning its operations with a nationwide policy of redeemability. The Second Bank was enacted into law on April 10, 1816, again with a 20-year charter. The Treasury also made wholesale retirements of the Treasury notes in 1816–1817, effectively shrinking the supply of money. A defla- tion had begun with the intent of raising the value of the Southern banks’ banknotes back to their prewar value so that convertibility could be resumed. The deflation hit the economy, causing a reces- sion in 1818–1820 and the Panic of 1819. In the western states, the monetary turbulence led to the adoption of grain and whisky as media of exchange. Prices fell, and gradually a full-scale return to Money in America 45
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redeemability and the gold standard was made possible at the prewar parity of $18.65 per ounce of gold. After a stretch of prosperity, the Second Bank’s decline began with the enactment of the Tariff of 1828, known as the “Tariff of Abom- inations.” The government was running a surplus at the time, and the existing debt was modest. The protective tariff was pushed through by big northeastern manufacturing interests who wished to be pro- tected from foreign competition. Many manufactured goods were consumed in the southern states, where the economy was dominated by cotton for export. While the North got its protection, the South faced higher prices and shoddier products, and it expected a falloff of cotton exports due to the increased trade barriers. South Carolina later essentially nullified the North’s protective tariffs by refusing to enforce them, and talk of secession spread across the South. The North and South continued to do battle over the concept of protec- tionism versus free trade for the next three decades, which became inextricably entwined with antislavery debates (which were as much an economic issue as a moral one) and led to the Civil War. The economy slid into recession in 1828 on expectations of higher trade barriers. Demand for imports expanded ahead of the enactment of the tariff, and the imports were financed by an expan- sion of credit by banks. Foreigners ended up in possession of U.S. banknotes, whose value was slipping, and brought them in for redemption. In response, the Second Bank put pressure on banks to restrict their banknote issuance and bring the value of banknotes back to their gold parity. Andrew Jackson was elected president by antitariff elements of the electorate, and the tariff rates of 1828 were eventually lowered in 1832. In 1833, a nine-year series of tariff reductions began. Jackson, however, who despised banks of all kinds, blamed the Second Bank and its monetary restraint, not the tariff, for the contraction in 1828 and claimed the bank was unconstitutional. Didn’t it wield power over the entire banking system? Indeed it did, and that was one of the rationales for its creation. Many banknotes of regional banks remained GOLD: THE ONCE AND FUTURE MONEY 46
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In August 1814 the gov ernments of the Southern states...

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