The Second National Bank

Discussion 12-3 US History ~ Chapter 12 Topic Discussions E Lundberg Topic of Discussion – The Second National Bank

Related Topics Chapter Information ~ Ch 12; 3 sections; 19 pages Alexander Hamilton and the First National Bank The Age of Jackson (1824-1840) Bank Charters Section 1 ~ Jacksonian Democracy and States Rights Pages 394-401 Section 2 ~ Jacksons Policy Towards Native Americans Pages 402-407 The American System Section 3 ~ Prosperity and Panic Pages 408-412 Andrew Jackson Bank Wars

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Key Ideas Key Connections - 10 Major (Common) Themes 1. How cultures change through the blending of different ethnic groups. The Second National Bank was an extension of the First 2. Taking the land. 3. The individual versus the state. Bank started under G Washington> 4. The quest for equity - slavery and it’s end, women’s suffrage etc. 5. Sectionalism. The Second National Bank was chartered as a part of 6. Immigration and Americanization. 7. The change in social class. the American System. 8. Technology developments and the environment. A Jackson had political differences with the Bank opera- 9. Relations with other nations. 10. Historiography, how we know things. tors and sought to destroy it, which he did

Talking Points I Introduction

1. The United States’ Federal Reserve is undoubtedly one of the most important economic and financial institutions in the US and like all institutions of such importance it is easy for mainstream discourse to take it for granted. To forget the history of central banking in the US however would entail a dangerous loss of knowledge of an important context that influenced American politics for over a century. The whole question of the creation of a central bank was in fact a major issue of contention between the Founding Fathers since the early days of US independence.

2. As the first US Secretary of Treasury and the main proponent of the first central banking system, Alexander Hamil- ton quickly found himself at the center of this debate. Commissioned by President Washington he produced several reports on the state of the new nation, the first of which, the “First Report on Public Credit” submitted in 1790, carried a projection on the creation of a National Bank.

3. The proposed functioning of the Bank itself demonstrated the struggle between creating a strong force for economic stability whilst also preventing too heavy a concentration of power in the Federal Government. Most im- portantly, the Bank would be bound to a 20-year charter after which it required Congress’ approval for renewal of the charter. This Bank would also possess an initial capitalization of $10 million, one fifth of which was held as a loan from the bank to the Government, and to be repaid in installments. The rest of the money supply was intended for private businesses and shareholders from which was also drawn a twenty-five member board of directors.

Questions to Think About Supporting Materials How much control did the government allow private wealthy people to have over the bank? Andrew Jackson and the Bank War by Remini Andrew Jackson and the Bank of the US by Royall Did the bank continue to keep the wealthy people rich at Andrew Jackson v. Biddle’s Bank by Taylor the expense of the poor? Why did A Jackson have so much power? Where was the checks and balances? Discussion 12-3 US History ~ Chapter 12 Topic Discussions E Lundberg Topic of Discussion – The Second National Bank

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Talking Points 4. The financing of this bank, alongside Hamilton’s proposed credit measures, quickly ignited Southern and agrari- an opposition. In order to finance the bank and establish viable credit for the new United States, Hamilton suggested the re-appropriation of the remaining states’ war debts to the Federal Government alongside an increase in tax revenues from new tariffs on imported spirits, which would soon be known as the “Whiskey Tax”. Not only were the new taxes extremely unpopular, the transfer of state debts to the central Government meant that many of the southern states which had already paid off their war debts would be effectively double-taxing their citizens when paying off the new Federal debt.

5. Establishing a new central bank also created one of the first Constitutionality debates in the US government. While the Constitution had limited the role of Congress to regulate weights, measures and to the issuance of minted currency, creating a National Bank was, for Jefferson, Madison and their anti-Federalist supporters, out- side the boundaries of constitutional power. Hamilton saw himself forced to apply the now famous Implied Powers argument, declaring that the Constitution upon granting goals and aims for Government, also grants permission to create the means to achieve those same goals. Eventually, Hamilton’s arguments succeeded in persuading President Washington into approving the Bank bill and consequently starting the Bank charter.

6. However, even after the First Bank of the United States had become a reality, strong opposition remained, finally reaching a climax after Hamilton left his office as Secretary of Treasury. His successor, Oliver Wolcott Jr. was

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Talking Points swift in suggesting that the Federal Government sell all its shares of the Bank’s stock as a ready alternative to rais- ing taxes, effectively signaling the beginning of the end for the first Federal controlled Bank. Hamilton was thus unable to prevent the abandonment of the Central Banking system, with the charter being left to reach the end of its 20 year limit in 1811, after which it was sold and transformed into Stephen Girard’s Bank in Philadelphia.

II The Second Bank of the United States

1. The second major chapter in the history of central banking in the US began in the wake of the War of 1812. The decades following independence saw a dramatic rise in the importance of industry and trade in the economy, and the war had an adverse effect on them due in part to unregulated currency, which also increased demands for more security in government issued bonds. Thankfully for proponents of a new central bank this era in the US, now dubbed the “Era of Good Feelings”, was extremely conducive to further development of Federal projects and institutions.

2. What had been a fairly homogenous opposition to the First Bank of the United States was now divided between the Old and New Republicans, representing most of the Southern and Western states. While the Old Republicans insisted on the Constitutionality arguments that had been put forward by Jefferson during the debates on the First Bank of the US, the New Republicans supported the idea due to increased interdependence between the growing finance industry and the large southern plantations. New opposition emerged from privately owned banks, both chartered and unchartered, that had come to dominate the market in the absence of a regulatory entity.

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Talking Points 3. After some debate but with considerably more ease compared to the First Bank, the Second Bank of the United States was signed into being and afforded a 20 year charter in 1817. Once again, one-fifth of the starting capital for the Bank was owned by the Federal Government, acting as its main shareholder and customer whilst also requiring certain services of the new Bank, most notably the handling of all government transactions and tax payments. The twenty-five board of directors was also in place, with five of those members chosen by the Presi- dent of the United States contingent on Senate approval.

4. Its first major challenge was quickly revealed to be restraining private and state-owned banks whose unregulated issuing of bank notes had been fuelling speculative booms. While by itself this posed an already formidable challenge, the Second Bank had also been created with the implied commitment to permitting prevailing laissez-faire policies that allowed credit exchanges between North and Eastern creditors to new Southern and Western debt- ors. The Bank was largely unsuccessful in controlling these speculative booms which led to the US market crash of 1819.

5. While the advent of a new crisis provided the Second Bank with an opportunity to demonstrate its economic ca- pacity, its proposed solutions and fiscal policies were largely belated in their application. The first President of the Second Bank officially resigned in 1819, who was made responsible in the application of most of those solutions which included a credit contraction that contrasted with a then recovering economy. These belt tightening policies inevitably led to increased unemployment, thus prolonging the following recession, creating further opposi-

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Talking Points tion and critics to central banking.

6. It was during this atmosphere of general distrust and dislike for the central bank, that President James Monroe appointed Nicholas Biddle as the new President of the Second Bank. Biddle proceeded to cautiously and suc- cessfully expanding credit alongside a growing US economy. The Bank also profited in public support from the first Supreme Court ruling in its favor, upholding its constitutionality and dissuading many of its more traditional critics from further challenge.

7. The source of the Second Bank’s demise would eventually arrive during Andrew Jackson’s Presidency in 1829. Despite the general public approval of the Bank, President Jackson attacked the Bank claiming a failure to pro- duce a stable currency alongside traditional constitutional concerns. Despite Congressional investigations and reports defending the Bank’s role in maintaining US currency and precedents for its constitutionality, Jackson was unwavering in his condemnation of the Second Bank as a corrupt corporation. President Jackson’s anti-bank platform carried him through his re-election in 1832, and in 1833 he proceeded to remove all Federal deposits from the Second Bank, moving them into several private and state banks. The Bank charter was thus allowed to expire in 1836 with the corporation itself being liquidated in 1841.

8. Andrew Jackson made a bold statement by closing the Second National Bank. The date he shut it down was the 10th of September in the year 1833. Andrew Jackson felt he had to shut down the bank because of the corrup-

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Talking Points tion between money and government. Congress seemed to overlook transgressions by the bank and enough was enough. Andrew Jackson fought the Second Bank and congress long and hard to finally remove the government’s money from the bank to watch it crumble.

9. On this day in 1833, President Andrew Jackson announces that the government will no longer use the Second Bank of the United States, the country's national bank. He then used his executive power to remove all federal funds from the bank, in the final salvo of what is referred to as the "Bank War." 10. A national bank had first been created by George Washington and Alexander Hamilton in 1791 to serve as a central repository for federal funds. The Second Bank of the United States was founded in 1816; five years after this first bank's charter had expired. Traditionally, the bank had been run by a board of directors with ties to industry and manufacturing, and therefore was biased toward the urban and industrial northern states. Jackson, the epitome of the frontiersman, resented the bank's lack of funding for expansion into the unsettled Western terri- tories. Jackson also objected to the bank's unusual political and economic power and to the lack of congressional oversight over its business dealings.

11. Jackson, known as obstinate and brutish but a man of the common people, called for an investigation into the bank's policies and political agenda as soon as he settled in to the White House in March 1829. To Jackson, the bank symbolized how a privileged class of businessmen oppressed the will of the common people of America. He made clear that he planned to challenge the constitutionality of the bank, much to the horror of its supporters. In response, the director of the bank, Nicholas Biddle, flexed his own political power, turning to members of Congress, including the powerful Kentucky Senator Henry Clay and leading businessmen sympathetic to the

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Talking Points bank, to fight Jackson.

12. Later that year, Jackson presented his case against the bank in a speech to Congress; to his chagrin, its members generally agreed that the bank was indeed constitutional. Still, controversy over the bank lingered for the next three years. In 1932, the divisiveness led to a split in Jackson's cabinet and, that same year, the obstinate president vetoed an attempt by Congress to draw up a new charter for the bank. All of this took place during Jack- son's bid for re-election; the bank's future was the focal point of a bitter political campaign between the Demo- cratic incumbent Jackson and his opponent Henry Clay. Jackson's promises to empower the "common man" of America appealed to the voters and paved the way for his victory. He felt he had received a mandate from the public to close the bank once and for all, despite Congress' objections. Biddle vowed to continue to fight the president, saying that "just because he has scalped Indians and imprisoned Judges [does not mean] he is to have his way with the bank."

13. On September 10, 1833, Jackson removed all federal funds from the Second Bank of the U.S., redistributing them to various state banks, which were popularly known as "pet banks." In addition, he announced that deposits to the bank would not be accepted after October 1. Finally, Jackson had succeeded in destroying the bank; its charter officially expired in 1836.

14. Jackson did not emerge unscathed from the scandal. In 1834, Congress censured Jackson for what they viewed

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Talking Points as his abuse of presidential power during the Bank War.

15. Jackson's style of reaching out for political issues was never better illustrated than his attack on the Second Bank of the United States. The bank had been chartered in 1816 to restore the country to a sound fiscal condition after near financial catastrophe during the War of 1812. It was a large corporation, managed and operated under both private and public auspices. Its capital was $35 million, partly subscribed by the United States government, and it was permitted to establish branches and issue bank notes. It was a profit-making institution that also provided public services such as transferring government funds around the country and functioning as a depository for the Treasury. Although it possessed no monopoly over the money supply, it exerted great influ- ence over the nation's financial affairs.

16. After a shaky start, the bank earned a reputation for fiscal responsibility under the presidency of Nicholas Bid- dle. It even gained considerable popularity among state bankers, who might have looked upon their giant rela- tive as an enemy. Still, the bank's support did not run deep; Jeffersonian constitutional scruples, traditional republican anxieties, and practical objections lingered among numerous Americans who considered its monetary policies either too lenient or too restrictive and its powers a potential threat to republican government.

17. Foremost among the doubters was Jackson. Having once been brought to the brink of insolvency by speculative adventures, Jackson became suspicious of all banks and their paper-money issues. His opposition to the national bank, therefore, was part of a broader anti-banking and hard-money perspective. "I have been opposed always

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Talking Points to the Bank of the U.S. as well as all state Banks of paper issues, upon constitutional ground," he insisted. He also suspected that the bank had intervened in local and national elections and thereby constituted a danger to free government. Thus, when preparing his first annual message, Jackson rejected pleas that he exclude refer- ence to the bank, responding to one worried counselor, "Oh! My friend, I am pledged against the bank."

18. It is unlikely that Jackson thought in terms of the immediate destruction of the Bank of the United States. Ra- ther, he intended to curb its abuses and explore possible alternatives. In his first message, he briefly observed that the bank's charter was scheduled to expire in 1836 and that its stockholders would probably apply for a renewal. Claiming that both the constitutionality and expediency of the bank were "well questioned by a large portion of our fellow-citizens" and that the bank had failed to establish a uniform and sound currency, he tenta- tively suggested that Congress consider substituting an institution more closely attached to the government. A year later, he reiterated his apprehensions about the "dangers" of the bank and elaborated on his proposal for a modified national bank that would be an adjunct of the Treasury.

19. Yet the pace of events remained like a minuet with both sides eyeing each other warily. Jackson's new cabinet, organized in the spring of 1831, contained two highly regarded figures, Louis McLane at the Treasury Depart- ment and Edward Livingston at the State Department, who sympathized with the bank. An all-out assault would doubtless have precipitated another cabinet crisis, something Jackson could ill afford. Perhaps, too, he preferred to delay further action until after the 1832 presidential election. Whatever his reasons, Jackson's third annual message, delivered in December 1831, was more modest than his earlier ones. While affirming his continued

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Talking Points misgivings about the bank, he ambiguously left the whole subject "to the investigation of an enlightened people and their representatives."

20. Jackson's moderation troubled anti-bank Democrats. They need not have worried, for events favored their cause. In January 1832, Biddle, acting on the unfortunate advice of political friends, submitted to Congress a memorial for renewing the bank's charter. The timing was obviously calculated to make the bank a political issue. The National Republican party had nominated Clay as its presidential candidate in December 1831, and he was eager to test Jackson's strength on this very question. The bank's transparent political design further con- vinced Jackson that it was indeed a "monster" that threatened to corrupt the nation. As Roger Taney, Jackson's new attorney general, explained, the bank's application meant that "the Bank says to the President, your next election is at hand—if you charter us, well—if not, beware of your power."

21. The recharter bill passed the Senate on 11 June and the House on 3 July 1832. Jackson met it with a veto that pulsed with the language of Jacksonian democracy. It pronounced the institution a private and privileged corporation whose concentration of political and economic power promoted corruption and threatened liberty. Jack- son scored the bank for its "exclusive privileges," claiming that most of its stock was held by foreigners and Americans "chiefly of the richest class." He accused it of operating inequitably, particularly against the West, and of "gross abuse" of its charter. Most especially he warned that the principles embodied in the bill contravened the basic principles of republican equality. Government, Jackson proclaimed, should confine itself "to equal pro-

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Talking Points tection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor." It should not add "artificial distinctions" to the inevitable natural and just differences among men and "make the rich richer and the potent more powerful."

22. Jackson's opponents assailed the veto as "the very slang of the demagogue." They had a point. Superficially, the message implied conflict between the rich and the poor. Yet its ideas were more complex. The veto did not call for the redistribution of wealth or for class war. Instead, it blended a progressive regard for equal opportunity and "competition," with the apprehension that special privilege and monopoly promoted corruption, concentration of power, and a dangerous degree of inequality. The bank veto appealed to concerns that were both con- temporary and nostalgic, as Jackson tried to reconcile an expanding and increasingly market-oriented society, of which the bank was a key agent, with the Revolution's ideal of a virtuous republic.

23. Inevitably, the bank became the paramount issue in the 1832 presidential election. Illustrating the rapid development of party organization during this period, the Democratic Party’s first national convention met in Balti- more in May 1832 and nominated Jackson and Van Buren. Although it was more fully attended than its rivals', the Democratic meeting was not the first national political convention. The previous December, the National Republicans had assembled in Baltimore to select Clay and John Sergeant of Pennsylvania as their standard- bearers. Even earlier, in September 1831, the nation's first major third party, the Anti-Masons, convened in Bal- timore. This party originated in upstate New York in 1826 when an itinerant stonemason named William Morgan disappeared after threatening to publish the secrets of Freemasonry. When local Masons obstructed the investigation into Morgan's kidnapping, a storm of grassroots protest erupted in western New York and spread

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Talking Points throughout New England, Pennsylvania, Ohio, Michigan, and other northern states. Anti-Masons soon organized politically and, inspired by moral and egalitarian ideals, advocated the eradication of the Masonic order as well as a variety of other reforms. Finding that the likely presidential contenders in 1832, Jackson and Clay, were both high-ranking Masons, Anti-Masonic leaders decided to nominate their own candidate.

24. The two opposition parties proved no match against Jackson's popularity and his party's organizational efforts. During the campaign, special-edition newspapers, parades, barbecues, and rallies supplemented an extensive network of Hickory Clubs and state and local organizations. Jackson, while carefully avoiding overt efforts at soliciting votes, managed to make numerous public appearances when returning to Washington in the early fall from a summer stay in Tennessee. The campaign, therefore, advanced the movement toward a popular, voter- oriented style of politics.

25. Jackson won a smashing reelection victory. His estimated 55 percent of the popular vote and 219 electoral votes demonstrated his continued special appeal to the voters. In contrast, Clay received 37 percent of the popular vote and 49 electoral votes, while Wirt gained only 8 percent of the popular vote and 7 electoral votes. The Anti- Masonic party soon dissolved, its members being absorbed by both the Democratic Party and the new Whig party. But there was no time to savor the triumph, for even as the results were recorded, Jackson's attention was primarily focused on South Carolina and the issue of nullification.