Bank War

The Bank War is the name given to the controversy over the Second Bank of the United States and the attempts to destroy it by then-president Andrew Jackson. At that time, it was the only nationwide bank and, along with its president Nicholas Biddle, exerted tremendous influence over the nation's financial system. Jackson viewed the Second Bank of the United States as a monopoly since it was a private institution managed by a board of directors, and in 1832 he vetoed the renewal of its charter.^[1]

History of the Banks of the United States

The First Bank of the United States was founded in 1791 with the support of Alexander Hamilton^[2] over the objections of Thomas Jefferson.^[3] The First Bank's charter expired in 1811 under President James Madison. The bank was revived in 1816 as the Second Bank of the United States, and Nicholas Biddle was appointed to be its president.^{[4] [5]} Madison and Congress agreed on the bank as a means to control inflation after the government found itself with a formidable debt as a result of the War of 1812.

The War, Election, and Jackson's Veto and removal of funds

The Bank War started in 1829,^[5] when Andrew Jackson made his antagonism toward the Second Bank of the United States clear. This came after the death of Jackson's wife, Rachel Jackson, as Jackson blamed her death on slanderous comments made during the election of 1828.^[6] In response, Biddle and Henry Clay applied to renew the bank's charter four years earlier than necessary in order to make it an election issue.^[5] But when Jackson easily won in the election of 1832, he interpreted this victory as a mandate to terminate the bank entirely.

Andrew Jackson’s background contributed to his veto of the bank's charter. Jackson had owed debts to banks during his youth and was a strong advocate for hard money (coins). His negative personal experiences contributed to his hostility towards banks and the use of paper money.^[7] Jackson explained his decision in his veto message to Congress,^[8] declaring that "some of the powers and privileges possessed by the existing bank are unauthorized by the Constitution" and referring to the bank as a monopoly.^[1]

A cartoon depicts Jackson battling the many headed monster of the bank.

He was viewed by Daniel Webster to be a monarchical president because he used his presidential power to veto liberally. Henry Clay tried to get Jackson impeached by alleging "Jackson claimed powers greater than European kings." The Senate approved the motion to censure Jackson in 1834.^[9] However in response, Andrew Jackson wrote to the Senate claiming that Maine, New Jersey, and Ohio were in support of his vetoes. These states legislatures considered Jackson’s vetoes to be wise and constitutional.^[10]

In 1833, Jackson moved to finish off the bank. Jackson ordered all federal deposits in the bank withdrawn. To do this, Jackson was forced to remove two secretaries of the treasury, eventually replacing Louis McClane and William J. Duane with the more agreeable Roger B. Taney.^[11] Jackson announced that effective October 1st, 1833, federal funds would no longer be deposited in the bank.^[5] In retaliation, Nicholas Biddle began calling in loans from across the country. Biddle believed that a financial crisis would highlight the need for a central bank. However, the move backfired, and angry businessmen and farmers blamed the bank. The bank lost its charter in 1836, and went out of business in 1841.^[12]

Whigs and Democrats

Strong opposition against President Jackson slowly grew to form the Whig political party. This political party was similar to the English Whigs in that they claimed that they were against tyranny and monarchy. The members were only united by their hatred towards Jackson and thus had little compatibility. Most of their support came from Northern merchants, Northern manufacturers, Southern landowners, and some Western farmers seeking internal improvements.^[13] It was hoped that this collaboration would enable Whig candidates William Henry Harrison and Hugh Lawson White to gather enough electoral votes to deny Martin Van Buren the presidency in the 1836 election. However, the plan failed, and Van Buren succeeded Jackson.

Lasting effects

After removing federal funds from the bank, Jackson placed the money in so called "pet banks" which were privately owned banks. This policy arguably led to the Panic of 1837.^[9] In an effort to take control of the unstable economy, Jackson issued the Specie Circular in 1836. This document required all purchases of federal lands to be paid in metal coin rather than paper money. Jackson's war on the bank set the stage for the emergence of modern populism. His egalitarian rhetoric allowed him to cast himself as the people's tribune against the moneyed elite and their tools in government, he introduced an enduring theme in American politics.^[9]

Biddle continued to believe the bank was an honorable institution needlessly killed by Jackson. In the second of two letters addressed to John Quincy Adams dated November 10, 1836, Biddle derided the loss of the bank and claimed that it had allowed the American financial system to remain stable.^[14]

References