Bank War

The Bank War refers to the political struggle that developed over the issue of rechartering the Second Bank of the United States (BUS) during the Andrew Jackson administration (1829-1837). ^[1]

Anti-BUS Jacksonian Democrats were mobilized in opposition to the national bank’s reauthorization on the grounds that the institution conferred economic privileges on financial elites, violating Republican principles of social equality. ^[2] With the Bank charter due to expire in 1836, The pro-BUS President of the Bank of the United States, Nicholas Biddle, in alliance with the National Republicans under Senator Henry Clay (KY) and Senator Daniel Webster (MA), decided to make rechartering a referendum on the legitimacy of the institution in the general election of 1832.^{[3] [4]}

When Congress voted to reauthorize the Bank, Jackson, as incumbent and candidate in the race, promptly vetoed the bill. His veto message justifying his action was a polemical declaration of the social philosophy of the Jacksonian movement ^{[5] [6]} pitting “farmers, mechanics and laborers” against the “rich and powerful” and arguing against the Bank’s constitutionality. ^[7][8]Pro-Bank interests warned the public that Jackson would abolish the Bank altogether if granted a second term. ^[9]

In the presidential campaigns of 1832, the BUS served as the central issue in mobilizing the opposing Jacksonian Democrats and National Republicans^[10]. Jackson and Biddle personified the positions on each side^[11], the Jacksonians successfully concealed the incompatibility of their “hard money” and “paper money” factions in the anti-Bank campaign^[12], allowing Jackson to score an overwhelming victory against Henry Clay. ^{[13] [14]}

Fearing ecomonic reprisals from Biddle and the Bank, Jackson moved swiftly to remove federal deposits from the institution. In 1833^[15] he succeeded in distributing the funds to several dozen private banks throughout the country. ^[16] The new Whig Party emerged in opposition to the assault on the Bank, officially censuring Jackson in the Senate, charging him with exceeding his executive authority. ^[17]In an effort to promote sympathy for the institution’s survival, Biddle retaliated by contracting Bank credit, inducing a serious and protracted financial downturn^[18]. A reaction set in throughout America’s financial and business centers against Biddle’s economic warfare,^[19]compelling the Bank to reverse its tight money policies. ^[20][21] By the close of 1834, recharter was a “lost cause.”^[22]

Instead of allowing the Bank to go out of existence, Biddle arranged it’s conversion to a state chartered corporation in Pennsylvania just weeks before its federal charter expired in March 1836. This episode in the Bank’s decline and fall ended in 1841 with liquidation of the institution. Jackson’s campaign against the Bank had triumphed. ^[23][24]

The Resurrection of a National Banking System

Though supported by President James Madison and his Treasury Secretary Albert Gallatin,^[25]opponents of the First Bank of the United States defeated recharter by a single vote in both the House and Senate in 1811.^[26] Opposition came from several fronts, including states’ rights advocates opposed to the doctrine of implied powers, private banking interests who objected to the regulatory effects of the BUS, and big mercantilists, including John Jacob Astor, who had disputes with the Bank’s directors. ^[27]

The practical arguments in favor of reviving a national system of finance, as well as internal improvements and protective tariffs, were prompted by national security concerns during the War of 1812 and its aftermath^[28]which had “demonstrated the absolute necessity of a national banking system”^[29]

The roots for the resurrection of the Bank of the United States lay fundamentally in the transformation of America from a simple agrarian economy to one that was becoming interdependent with finance and industry.^[30][31][32]Vast western lands were opening for white settlement,^[33] accompanied by rapid development, enhanced by steam power and financial credit.^[34]Economic planning at the federal level was deemed necessary by Republican nationalists to promote expansion and encourage private enterprise.^[35][36]

In 1815, Secretary of State James Monroe informed President James Madison that a national bank “would attach the commercial part of the community in a much greater degree to the Government [and] interest them in its operations…This is the great desideratum [essential objective] of our system.” ^[37] Support for this “national system of money and finance” grew with the post-war economy and land boom, uniting the interests of eastern financiers with southern and western Republican nationalists who sought to “employ Hamiltonian means to Jeffersonian ends”^[38] and to “Republicanize Hamiltonian bank policy.”^[39]

The era of laissez faire was underway ^[40]

“Jackson and Reform”: Implications for the BUS

Andrew Jackson’s victory in the 1828 presidential race was achieved through harnessing the widespread social resentments and political unrest persisting since the economic disaster of 1819 ^[41] and the Missouri Crisis of 1820. ^[42][43]

Under the banner of “Jackson and Reform”^{[44] [45]} the Democratic Party launched a spirited and sophisticated campaign ^[46] against incumbent president John Quincy Adams, personifying him as purveyor of corruption and fraudulent republicanism, and a menace to American democracy ^[47][48] At the heart of the campaign was the conviction that Andrew Jackson had been denied the presidency in 1824 only through a “corrupt bargain” devised by Adams and Clay; a Jackson victory promised to rectify this betrayal of the popular will.^[49]

Jackson was both the champion and beneficiary of the revival of the Jeffersonian North-South alliance, ^{[50][51] [52]}reasserting the Old Republican precepts of limited government, strict construction, state sovereignty and Southern preeminence.^[53][54][55]Upon these principles, the Missouri Compromise would be honored, and the issue of slavery suppressed in the interests of preserving the Union.^[56] Federal institutions that conferred privileges producing “artificial inequality” would be eliminated through a return to strict constructionism.^[57]The “planter of the South and the plain Republican of the north^[58] " would provide the support, wielding universal manhood suffrage. These precepts would necessarily bring the Jacksonian Democracy politically into collision with the Second Bank of the United States.^[59]

So as to conceal the incompatibility of their hard-money and paper-money factions, Jackson ’s associates never offered a platform on banking and finance reform. ^[60][61] As such, the Second Bank of the United States “was not an issue in the 1828 elections."^[62] Jackson would not publicly air his grievances with the BUS until December 1829. ^[63]

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

The Bank War started in 1829,^[64] when Andrew Jackson made his antagonism toward the Second Bank of the United States clear.^[65] In response, Nicholas Biddle and Henry Clay applied to renew the bank's charter four years earlier than necessary in order to make it an election issue.^[64] 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 earlier years, and had experienced the plight of the indebted, who would often have their property and anything of value repossessed by banks, over what were often termed unfair agreements. He was a strong advocate for hard currency. His negative personal experiences contributed to his hostility towards banks and the use of fiat money.^[66] Jackson explained his decision in his veto message to Congress,^[67] declaring that "some of the powers and privileges possessed by the existing bank are unauthorized by the Constitution" and referring to the bank's sole control on the country's currency as a monopoly.

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

His stance against the bank brought him a great deal of resistance and criticism from powerful quarters, and at one point stood to be impeached by its supporters - such was the influence of the central bank and its vast wealth. He was viewed by Daniel Webster to be a monarchical president because he used his presidential power to veto against the bank liberally. Henry Clay, who owned a number of banks and was an avid supporter of the central bank, moved to get Jackson impeached, on the notion that "Jackson claimed powers greater than European kings." The Senate approved the motion to censure Jackson in 1834.^[68] However in response, Andrew Jackson wrote to the Senate stating that Maine, New Jersey, and Ohio were in support of his vetoes. These states' legislatures considered Jackson’s anti-bank vetoes to be wise and constitutional.^[69] The censure text was expunged in 1837 when the Senate Democrats resumed a majority.^[70]

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 who refused to carry out Jackson's orders, eventually replacing Louis McLane and William J. Duane with the more agreeable Roger B. Taney.^[71] Despite the Senate's refusal to confirm Taney's appointment, during his nine months as acting Secretary, he carried out Jackson's orders. Jackson announced that effective October 1, 1833, federal funds would no longer be deposited in the bank.^[64] In retaliation, Nicholas Biddle began calling in loans from across the country, engineering a financial crisis. Biddle believed that this would highlight the need for a central bank. However, the move backfired, when angry businessmen and farmers started blaming the bank. The bank lost its charter in 1836, and went out of business in 1841.^[72] The third central bank, called the Federal Reserve Bank was not chartered until 1913, during the presidency of Woodrow Wilson, citing the Economic Crisis of 1907 as justification.

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.^[73] 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.^[74] 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.^[68] 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, introducing an enduring theme in American politics.^[68]

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 decried the loss of the bank and claimed that it had allowed the American financial system to remain stable.^[75]

References

Bibliography

Cited in footnotes