Bank War Lecture Notes

BANK WAR The Bank of the United States was founded by Congress in 1791 as a fundamental component of Alexander Hamilton's financial scheme, but its 20-year charter ran out in 1811. Congress decided not to extend the bank's charter at that time, motivated by the majority's animosity against the organization as a wealthy elite patronage. In 1816, Congress authorized the Second Bank of the United States as a new national bank to take its place. Its twenty-gear charter was also expiring in 1836. To keep the banking system stable, the Second Bank of the United States was established. In 1816, there were over two hundred banks in the US, and nearly all of them were issuing paper money. Put another way, people were presented with a confusing maze of paper money that had no set value. In actuality, the Panic of 1819 had been greatly exacerbated by the issue of paper money. The National Bank relocated to a grand new structure in Philadelphia during the 1820s. But even after Congress approved the Second Bank of the United States, a lot of people still saw it as an anti-democratic weapon used by the affluent. Among them was President Jackson, who was wary of paper money since he had experienced his own share of economic disasters while engaging in property speculation. Hard money, or gold or silver, was, in Jackson's opinion, a far superior option. Nicholas Biddle, the bank's director, was likewise personally hated by the president. Politicians were drawn to mass democracy in large part because it offered them the chance to capitalize on the angst and animosity that the general public felt against what they saw to be the advantages of a select few. The self-important remarks of Biddle, who claimed to have more power than President Jackson, helped fuel sentiments like those of Thomas Hart Benton, a leading opponent of the bank who said that it served "to make the rich richer, and the poor poorer." Benton was a senator from Missouri. Jackson's congressional rivals, notably Henry Clay, sought to take advantage of the bank's backing in the 1832 reelection campaign. Its charter was not due to expire until 1836, but they lobbied for legislation to re-charter it in January 1832. President Jackson exercised his executive authority to veto the re-chartering law after it was enacted. Jackson's ability to concentrate on the particular problems that infuriated the democratic majority is demonstrated by the failure of the Second Bank of the United States. Jackson recognized the public's resentment and mistrust of the bank because it was seen as a symbol of large government and privileged privilege. Using that impression to his advantage, he cleverly presented the bank problem as a fight between the common people and a greedy elite class that only cared about itself and the public good. Jackson depicted it as a conflict between the general populace and limited government. His opposition to the bank, which his detractors dubbed the "monster bank," proved to be highly popular, and the Democratic press praised him greatly for it. In the 1832 election, Jackson defeated opponent Henry Clay with approximately 53 percent of the popular vote. The president transferred the deposits from the national bank to state banks in 1833, marking just one phase of the fight against the "monster bank in addition to Jackson's veto. The bank's chief, Biddle, responded by capping loans to state banks, which decreased the amount of money in circulation. Jackson's presidential directive, the Specie Circular, mandating that western property purchases be made exclusively in gold or silver, only made the financial unrest worse. Regrettably, this strategy backfired when the Bank of England, which provided the majority of the hard currency that American companies borrowed, drastically reduced its lending to the country. American depositors emptied the gold and silver from their own domestic banks in the absence of the flow of hard money from England, which made hard currency rare. Cotton prices fell precipitously in the late 1830s, exacerbating the economic hardship and triggering the Panic of 1837. Van Buren, who was elected president in 1836, would suffer the price for Jackson's hard-currency preferences, and this economic panic would be politically advantageous for Jackson's opponents in the gears to come.