Ron Paul’s Rally for the Republic in Minneapolis last September had an echo of 1832. The Twin Cities’ Target Center thundered to chants of “End the Fed!” much as a gathering of Andrew Jackson’s “Hurra boys” had roared, “Down with the bank!” and “No rag money!” President Jackson’s implacable opposition to the second Bank of the United States carried him to re-election and branded his party, the newly organized Democrats, as champion of the middle classes. Today, as discontent with the Federal Reserve mounts—a majority of Congressman Paul’s House colleagues has cosponsored his bill to audit the Fed—can the Republican Party find a path back to power in Jackson’s anti-bank strategy?

The Federal Reserve System is essentially the third Bank of the United States. It was created in 1913 as a compromise between wealthy proponents of central banking, progressives and populists who wanted to take control of the money supply away from Wall Street and put it in the hands of the federal government, and conservative Democrats who wanted a reserve system to provide liquidity in case of another national emergency like the Panic of 1907, in which J.P. Morgan had to marshal private capital to rescue the stock market. All of these groups got something out of the public-private hybrid that was the Federal Reserve. Thus the central bank began with little controversy.

The good feelings did not last long. Congressman Charles Lindbergh Sr., the so-called “Gopher Bolshevik,” soon denounced the Fed as part of the same “Money Trust” that had long run the country. “Our financial system has been turned over to the Federal Reserve Board. Board members finance the system by the authority of a purely profit-taking group. The system is private, codified for the sole purpose of obtaining the greatest possible profits from the sum of other people’s money,” he warned. Attacks on the Fed have since come from the Right as well, with free-market economists such as Milton Friedman and Murray Rothbard blasting the central bank for constricting the money supply in the 1930s (which led to the Great Depression) and the expansionist credit and currency policies of the 1960s and ’70s (which led to the Great Inflation).

The secrecy and concentrated financial power of central banking has always aroused populist suspicions. The chartering of the first Bank of the United States (BUS) in 1791 quickly gave rise to opposition, which saw Alexander Hamilton’s brainchild as undemocratic, monopolistic, a tool of foreign stockholders, and a betrayal of the Revolution, since colonists had rebelled as much against the economic policies of the Bank of England as against the Crown itself. Once Thomas Jefferson’s popular Republican Party rose to power, the bank’s doom was assured. President Madison allowed its charter to lapse in 1811.

But after the War of 1812, Madison changed his mind. He supported chartering a second Bank of the United States to stabilize the war-wracked nation’s finances and curb the influence of local paper-issuing banks. Demand for credit in the young Republic soared after Kentucky became a state in 1792 and Tennessee joined the Union in 1796, as settlers poured into these states and pressed further south and southwest. These frontiersmen were Andrew Jackson’s people—Scots-Irish from Pennsylvania, Virginia, and the Carolinas. Between 1817 and 1818, the Kentucky state legislature, in what social historian William Graham Sumner called “bank mania,” chartered 40 small banks to lend settlers money. The Bank of the United States, far from quelling this credit expansion, got in on the act by opening branches in Louisville and Lexington. The result was a classic speculative bubble that finally burst in the Panic of 1819, sending the Mississippi and Ohio valley regions into a collapse that took five years to liquidate.

Local banks, including Kentucky’s state-run Bank of the Commonwealth, deserved most of the blame. But the BUS had done its part to feed the speculative frenzy, and further resentment of the bank was stoked by the Supreme Court’s McCullough v. Maryland decision, which ruled that states could not tax the BUS but the BUS could tax local banks to the tune of $60,000 each. The Bank of the United States received over $600,000 from former shareholders in Commonwealth Bank, while many settlers lost their land. Weren’t these frontiersmen, whose Kentucky Rifles had won the Battle of New Orleans, only doing what the federal government wanted by populating this area from the eastern mountains to the Mississippi River and beyond?

Jackson had hated what he called “ragg, tag banks” since he was a young shopkeeper and land speculator in Tennessee. Favoring hard currency, he believed banks issued “wretched rag money” and the credit they lent only encouraged indebtedness. But Jackson had no particular problem with the Bank of the United States until one was thrust on him in 1832. He was drawn into the bank wars by advisers from Kentucky and Tennessee, who bore grudges for what had happened in 1819, and by bank supporters like Sen. Henry Clay, who thought that making early renewal of the bank’s charter an issue in the upcoming presidential election would split Jackson’s Democrats and secure for Clay’s National Republicans the electoral votes of Pennsylvania, where the bank was based and remained very popular. The bank was also an important part of Clay’s financial program, his “American System” of government-sponsored domestic projects such as roads and canals.

BUS President Nicholas Biddle was a young reformer when he took the job in 1823 and did his utmost to keep politics out of the bank’s deliberations. But it was an impossible task, especially on the local level where politicians either clashed with branch officials or became recipients of their patronage. Every time Biddle tried to assert the bank’s independence, in often arrogant and sulfurous language, he played into his enemies’ hands. In trying to keep politics away from the BUS, he argued that it should be an elite institution in an age that celebrated popular democracy.

Biddle no more wanted to make the bank an issue than Jackson did. But Clay insisted, and thus the BUS applied for a charter renewal in 1832. Congress approved it, but Jackson applied the veto. The BUS resorted to politics in an attempt to save itself, but Biddle’s hardball tactics only confirmed the image the Democrats projected of the BUS as an aristocratic moneyed institution looking to crush Jackson, the common man’s avatar. The BUS spent over $100,000 to defeat Jackson. It subsidized anti-Jackson newspapers, pamphlets, journals, and speeches; it gave loans to pro-Bank politicians and encouraged employers to threaten workers with losing their jobs if Jackson won. It was all for naught. The veto thrilled the voting public and drew Democrats together in resistance to the bank.

The BUS may have been popular in Pennsylvania, but so was Jackson. The rural Scots-Irish of the state gave their loyalties to one of their own blood rather than a moneyed institution. The veto message, Sen. James Webb writes in Born Fighting, “could have well emanated from a meeting of the Scottish Kirk two hundred years before.” It also cemented the loyalties of those “humble members of society—the farmers, mechanics, and laborers—who neither have the time nor the means of securing favors” to the Democratic Party for the next 175 years.

Populism of a different kind built the modern Republican Party. Each of its major constituencies during its recent peak—between 1980 and 2006—arose from a populist revolt against elite administration. The supply-side revolution emerged from grassroots revulsion to the welfare and high taxes of the 1960s and ’70s, as well as the stagflation that marred the latter decade. Tax revolts in California and Massachusetts showed Republicans the way. National-security conservatism, in turn, was fueled by the populist backlash against American defeat in Vietnam, the Iranian hostage crisis, détente, and the Panama Canal treaties. Religious conservatism was created by Supreme Court decisions on abortion and school prayer. The Religious Right was populist from the start, as seen in the movement to stop the ERA, in the Moral Majority, and in other New Right groupings.

But all those are yesterday’s crusades. By 2006, the Republican Party could no longer gain much traction from tax cuts, national-security rhetoric, and moral appeals whose sincerity was belied by the behavior of GOP officeholders. Republicans stand in desperate need of a new populist uprising—and a new philosophy to take advantage of it. Do we see the stirrings of one in the recent anti-tax tea parties and the pressure that has been brought to bear on Congress to audit the Fed? A new round of bank wars has the potential to wrongfoot the Democrats, unraveling the party by stealing the issue that built Jackson’s coalition in the first place. Two of the populations that have been hurt most by the bursting bubble and ensuing credit contraction are key Democratic constituencies: working-class Americans who live paycheck to paycheck and young Americans who need ample credit to start their own homesteads—not on the frontiers, perhaps, but in cities and counties across the land.

Few politicians in either party seem inclined to defend the Fed’s lack of transparency, while mighty and aloof Federal Reserve governors are hardly more popular now than Nicholas Biddle was in 1832. And like Biddle, Fed Chairman Ben Bernanke has begun to dabble in politics, taking to “60 Mintues” to defend the central bank in the court of public opinion while hiring lobbyists—a first for the Fed—to fight legislation to audit it. The conditions are ripe for a new anti-banking coalition, if the Republicans can find the nerve to follow Old Hickory. 

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