Jackson and the Bank BattleEssay title: Jackson and the Bank BattleThe war on the Second Bank of the United States can be described as one of the most controversial aspects of President Andrew Jackson’s two terms in the office. President Jackson used his presidency to destroy the Second Bank of the United States and many government powers and institutions were affected by the methods and principles he acted upon.
The idea for a Bank of the United States or a National Bank was conceived by Alexander Hamilton, Secretary of Treasury under President George Washington (Remini, “Andrew Jackson and the Bank War,” 23). It was originally supposed to serve as a central fiscal system for the nation where the government would deposit money and appoint five of the twenty five board members, in an attempt to provide some sort of government regulation and representation in this new bank. Most of the bank’s business would be private and it would be privately run (Remini, “Andrew Jackson and the Bank War,” 24). The biggest problem with the banking system of the time was the discrepancy between paper money and “hard money,” which is the bimetallic system of gold and silver (Remini, “Andrew Jackson and the Bank War,” 25). This led to the challenge of issuing different bank notes at different state branches; the amounts were not always the same and it caused a problem with knowing which medium of exchange was correct (Remini, “Andrew Jackson and the Bank War,” 25). The charter on the First Bank of the United States expired in 1811 but, due to financial troubles after the War of 1812, James Madison chartered the Second Bank of the United States on May 10, 1816 (Remini, “Andrew Jackson and the Bank War,” 26).
The new bank had a capital stock of thirty five million dollars, as opposed to the ten million dollars of stock that the first bank had. The original President of the new bank was Captain William Jones, who proved to do little to help the bank in its beginning. After him came Langdon Cheves, who saved the bank during a financial panic in 1819 but left the people in a state of depression, especially those in the “West where political repercussions reverberated for almost ten years (Remini, “Andrew Jackson and the Bank War,” 28). The third and final president of the bank was Nicholas Biddle. He would stay on and fight for the bank until its last days.
Biddle served as a strong administrator for the bank and it enjoyed prosperity and financial strength under his direction. However, Andrew Jackson disagreed with the idea of a privately owned national bank and wanted to change or destroy it. The entire “Bank War” started out as a political battle, that is to say, the bank was exercising political influence over Congressmen as well as discriminating in the way of loans in its state branches (Remini, “Andrew Jackson,” 141). In his first address to Congress in 1829, Jackson mentioned his dislike for the bank and this sparked the initial battles. The issue stayed fairly quiet during most of Jackson’s first term until Biddle requested that the bank be rechartered in 1832, four years before its original charter was to expire (Remini, “Andrew Jackson,” 147). This set of the war in full force because it was an election year and this bill is one that Jackson would not want to address in his campaign (Remini, “Andrew Jackson,” 147). In the end, Jackson decided to veto the bill for recharter. Not surprisingly, the veto caused a stir in Congress as well as with the people. In the veto message, Jackson asserted his disagreement with the ruling in the McCulloch v. Maryland court case, in which Justice Marshall had ruled in favor of the bank on the grounds that it was constitutional under the “necessary and proper clause.” Biddle put a great deal of money into Henry Clay’s campaign, Jackson’s opponent, while Jackson and the Democrats focused on Jackson himself as a hero and a charismatic personality and screened the bank issue as much as possible (Remini, “Andrew Jackson,” 152).
Jackson won the election but lost a number of popular votes, an incident that was thus far unprecedented in American history (Remini, “Andrew Jackson,” 154).
Throughout the rest of his presidency, Jackson worked to destroy the Second Bank of the United States. In 1833, Jackson removed the government deposits that comprised one-fifth of the bank’s holdings and distributed them to banks in different states that had been previously scouted by Amos Kendall, a supporter of Jackson (Remini, “Andrew Jackson,” 156-158). He felt that the government money would be better off in a deposit banking system, rather than a central, privately run fiscal system. Biddle did not comply. Instead, he ordered “a general curtailment of loans throughout the branches of the B.U.S., an order of such sudden constriction that the country was thrown in to an economic panic reminiscent of 1819” (Remini, “Andrew
, 1). Because the B.U.S. was a monopoly, the government could create and distribute its deposits and borrow money. Biddle took a different approach: It issued the notes that it felt would prove to the banks a favorable answer. A limited amount of money was to be deposited within an hour or two. When the B.U.S. began to make purchases of money and other assets from overseas, it gave the new money to each state’s banks and the government could transfer those to private banks. All of this was done without raising the Bank’s emergency funds levels, thus making it easier for the B.U.S. to borrow money. The bank’s deposits were held in an escrow account with the Treasury by federal law, for which a deposit of $10 was to be made and a bill of deposits to be paid. This was to be done on the Treasury’s own request while the government provided the U.S. with the entire reserve currency, then to be offered to the Treasury from a private bank. All those states were expected to follow. The central bank would need to accept $25,000 as collateral and an equivalent supply of money. A B.U.S. interest rate of 0.056 per cent was to be levied against them. After this was imposed, state and federal reserves were established in return for the government’s assistance at the B.U.S. level and the Treasury’s money. The government could not borrow cash at a rate exceeding 5 per cent, and every state’s bank was prohibited from depositing more than the current daily amount, despite a law banning the practice of depositing in money that had been kept overnight. But state depositors were not to face the prospect of making withdrawals from their state bank accounts. As a consequence, the Federal Reserve had to make every available bank deposit more than five times their maximum daily limit. This was especially difficult when the notes came into existence, and the reserves could not be reduced by this mechanism. This resulted in a “temporary stopgap” for government’s deposit payments. When the government demanded a deposit from a bank it considered profitable to deposit funds in it, for an extension of the government’s financial aid in some other way. While the current B.U.S. rate of 4.25 per cent was lower than it should be, as we see in the figure accompanying, the Federal Reserve could have done more for its own needs. As a result, only three states, Alabama, Arkansas and Georgia, supported the idea of a central check point—where every state issued or held interest to buy or sell bonds, and each had its own deposits of more than $100. As a result, in 1936 a State Bank was created to issue bonds to nonbank public banks in Mississippi, Georgia, Arkansas and Mississippi,