Bank War
Encyclopedia
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 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.
was founded in 1791 with the support of Alexander Hamilton
over the objections of Thomas Jefferson
. 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. 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
.
made his antagonism toward the Second Bank of the United States
clear. 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. 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
. Jackson explained his decision in his veto message to Congress, 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.
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. 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. The censure text was expunged in 1837 when the Senate Democrats resumed a majority.
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
. 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. 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.
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.
. 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. 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.
" which were privately owned banks. This policy arguably led to the Panic of 1837
. 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.
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.
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
and the attempts to destroy it by President Andrew Jackson
Andrew Jackson
Andrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...
. At that time, it was the only nationwide bank and, along with its president Nicholas Biddle
Nicholas Biddle (banker)
Nicholas Biddle was an American financier who served as the president of the Second Bank of the United States.-Ancestry and early life:...
, exerted tremendous influence over the nation's financial system. Jackson viewed the Second Bank of the United States as a monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
since it was a private institution managed by a board of directors, and in 1832 he vetoed the renewal of its charter.
History of the Banks of the United States
The First Bank of the United StatesFirst Bank of the United States
The First Bank of the United States is a National Historic Landmark located in Philadelphia, Pennsylvania within Independence National Historical Park.-Banking History:...
was founded in 1791 with the support of Alexander Hamilton
Alexander Hamilton
Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
over the objections of Thomas Jefferson
Thomas Jefferson
Thomas Jefferson was the principal author of the United States Declaration of Independence and the Statute of Virginia for Religious Freedom , the third President of the United States and founder of the University of Virginia...
. The First Bank's charter expired in 1811 under President James Madison
James Madison
James Madison, Jr. was an American statesman and political theorist. He was the fourth President of the United States and is hailed as the “Father of the Constitution” for being the primary author of the United States Constitution and at first an opponent of, and then a key author of the United...
. The bank was revived in 1816 as the Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
, and Nicholas Biddle
Nicholas Biddle (banker)
Nicholas Biddle was an American financier who served as the president of the Second Bank of the United States.-Ancestry and early life:...
was appointed to be its president. Madison and Congress agreed on the bank as a means to control inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
after the government found itself with a formidable debt as a result of the War of 1812
War of 1812
The War of 1812 was a military conflict fought between the forces of the United States of America and those of the British Empire. The Americans declared war in 1812 for several reasons, including trade restrictions because of Britain's ongoing war with France, impressment of American merchant...
.
The War, Election, and Jackson's Veto and removal of funds
The Bank War started in 1829, when Andrew JacksonAndrew Jackson
Andrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...
made his antagonism toward the Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
clear. In response, Nicholas Biddle
Nicholas Biddle
Nicholas Biddle may refer to:* Nicholas Biddle , officer in the American Continental Navy* Nicholas Biddle , American banker and President of the Second Bank of the United States...
and Henry Clay
Henry Clay
Henry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
applied to renew the bank's charter four years earlier than necessary in order to make it an election issue. But when Jackson easily won in the election of 1832
United States presidential election, 1832
The United States presidential election of 1832 saw incumbent President Andrew Jackson, candidate of the Democratic Party, easily win re-election against Henry Clay of Kentucky. Jackson won 219 of the 286 electoral votes cast, defeating Clay, the candidate of the National Republican Party, and...
, he interpreted this victory as a mandate
Mandate (politics)
In politics, a mandate is the authority granted by a constituency to act as its representative.The concept of a government having a legitimate mandate to govern via the fair winning of a democratic election is a central idea of democracy...
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
Hard currency
Hard currency , in economics, refers to a globally traded currency that is expected to serve as a reliable and stable store of value...
. His negative personal experiences contributed to his hostility towards banks and the use of fiat money
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...
. Jackson explained his decision in his veto message to Congress, 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.
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
Daniel Webster
Daniel Webster was a leading American statesman and senator from Massachusetts during the period leading up to the Civil War. He first rose to regional prominence through his defense of New England shipping interests...
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. 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. The censure text was expunged in 1837 when the Senate Democrats resumed a majority.
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
Louis McLane
Louis McLane was an American lawyer and politician from Wilmington, in New Castle County, Delaware, and Baltimore, Maryland. He was a veteran of the War of 1812 and a member of the Federalist Party and later the Democratic Party. He served as the U.S. Representative from Delaware, U.S. Senator...
and William J. Duane with the more agreeable Roger B. Taney
Roger B. Taney
Roger Brooke Taney was the fifth Chief Justice of the United States, holding that office from 1836 until his death in 1864. He was the first Roman Catholic to hold that office or sit on the Supreme Court of the United States. He was also the eleventh United States Attorney General. He is most...
. 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. 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.
The third central bank, called the Federal Reserve Bank
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
was not chartered until 1913, during the presidency of Woodrow Wilson, citing the Economic Crisis of 1907
Panic of 1907
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...
as justification.
Whigs and Democrats
Strong opposition against President Jackson slowly grew to form the Whig political partyWhig Party (United States)
The Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
. 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. It was hoped that this collaboration would enable Whig candidates William Henry Harrison
William Henry Harrison
William Henry Harrison was the ninth President of the United States , an American military officer and politician, and the first president to die in office. He was 68 years, 23 days old when elected, the oldest president elected until Ronald Reagan in 1980, and last President to be born before the...
and Hugh Lawson White
Hugh Lawson White
Hugh Lawson White was a prominent American politician during the first third of the 19th century. He succeeded Andrew Jackson and served in the United States Senate, representing Tennessee, from 1825 until his resignation in 1840, and was a Whig candidate for President in 1836...
to gather enough electoral votes to deny Martin Van Buren
Martin Van Buren
Martin Van Buren was the eighth President of the United States . Before his presidency, he was the eighth Vice President and the tenth Secretary of State, under Andrew Jackson ....
the presidency in the 1836 election
United States presidential election, 1836
The United States presidential election of 1836 ushered Martin Van Buren into the White House. It is predominantly remembered for three reasons:...
. 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 banksPet banks
Pet banks is a pejorative term for state banks selected by the U.S. Department of Treasury to receive surplus government funds in 1833. They were also named "Wildcat Banks". They were made among the big U.S...
" which were privately owned banks. This policy arguably led to the Panic of 1837
Panic of 1837
The Panic of 1837 was a financial crisis or market correction in the United States built on a speculative fever. The end of the Second Bank of the United States had produced a period of runaway inflation, but on May 10, 1837 in New York City, every bank began to accept payment only in specie ,...
. In an effort to take control of the unstable economy, Jackson issued the Specie Circular
Specie Circular
The Specie Circular was an executive order issued by U.S. President Andrew Jackson in 1836 and carried out by President Martin Van Buren. It required payment for government land to be in gold and silver.-History:...
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
Populism
Populism can be defined as an ideology, political philosophy, or type of discourse. Generally, a common theme compares "the people" against "the elite", and urges social and political system changes. It can also be defined as a rhetorical style employed by members of various political or social...
. 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.
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.