Jackson succeeded in his determination to destroy the
Second Bank of the United States but deposits of
government money into the "Pet
Banks" resulted in the
Specie Circular which dried up credit and ultimately led
to the Panic of 1837.
The
Bank War History for kids: Period of Economic Growth
The
War of 1812 had helped to nurture an exuberant
sense of nationalism in the country. The nation entered a period of
confidence and economic growth. A great three-part economic plan
called the American System was
initiated by Henry Clay to
meet the requirements of the expanding nation. The 'American System'
was designed to see American trade flourish. Money was made
available for the industrialists to build factories in the east and
to buy land and start farms in the west. A transport system was to
be built enabling people to move westward. A key factor in this
economic plan was the establishment of the
Second Bank of the United
States to
provide easy credit to Americans to enable them to improve their
lives.
The
Bank War History for kids: The Second Bank of the United States
The 20% of
the Second Bank of the United States was owned by the United States
government whilst private investors owned the rest. It was therefore still a privately held banking corporation. A
charter for the Second Bank was signed into law by President Madison
on April 10, 1816. The bank's charter was for twenty years expiring
in 1836. Within three years the country was hit by the economic
catastrophe referred to as the Panic of 1819. The panic of 1819 was
part of a worldwide financial crisis but many of the problems
experienced in the U.S. were caused by the Second Bank of the United
States.
The
Bank War History for kids: Poor Management of the Second Bank of the United
States
The Second Bank of the United States was directed under extremely
poor management - at the time banks were unregulated. The first
president was a man called William Jones whose merchant business had
gone bankrupt early in his career. He moved into politics and became
Secretary of the Navy and later Secretary of the Treasury. His
service as Secretary of the Treasury was marked by mismanagement of
finances. But he was 'one of the boys' and appointed the banking
president (refer to the Spoils System).
His record of mismanaging finances continued in his new role. The
bank itself was involved in speculation during the land boom and
credit was recklessly extended to people without collateral. The
financial bubble burst and Jones then rescinded credit too quickly
resulting in the
Panic of
1819.
The
Bank War History for kids: The Panic of 1819
The history of the Bank War was
therefore rooted in the mismanagement of the Second Bank of the
United States and the Panic of 1819 that was followed by a two year
depression which had devastating effects on the nation.
Nicholas Biddle and the Bank War
The incompetent William Jones was replaced by a new president
called Langdon
Cheves, a politician and attorney from South Carolina. Langdon
Cheves wasn't much better than Jones and his actions added to the
plight of the people. Cheves resigned in 1823 and was replaced by
Nicholas Biddle. He was a much better choice. Nicholas Biddle was a
wealthy politician from Philadelphia who had already served on
the Board of Directors at the Second Bank. Nicholas Biddle also had
the highly influential backing of politicians such as Henry Clay and
John C. Calhoun. It should also be pointed out that 40 members of
Congress held stock in the bank.
Andrew Jackson and the Bank War: Effects of the Panic of 1819
The
memory of the Panic of 1819 was burned into the memory of Andrew Jackson.
The effects of the Panic of 1819
had fostered a profound mistrust
of banks, bankers and paper money in the minds of Andrew Jackson and
many of his fellow Americans. They
had either witnessed, or experienced, foreclosures by the banks,
bankruptcies resulting in the loss of land, homes and livelihoods,
unemployment, rampant inflation, the inability to obtain credit, the
decimation of land values and over crowded debtors prisons. Andrew
Jackson had experienced the damage caused by banks at first hand. He
had accepted paper promissory notes for the sale his land. The
buyers went bankrupt, the notes became worthless and Jackson only
just survived financial ruin. He would never place his trust in bank
notes (specie) again - he believed payments should be made in gold
or silver coinage. His experience also gave him the belief that
nothing should be bought on credit - people should only spend what
they had.
Andrew Jackson and the Bank War: Jackson resolves to destroy the
Second Bank of the United States
Andrew Jackson was elected
President and began his presidency on
March 4, 1829 - he swore to bring about the destruction of the
Second Bank of the
United States. The Bank War began. There were additional reasons for
his pledge. The bank was large in size, having 25 branches across
the country. It was powerful and, under the competent management of
Nicholas Biddle, was growing prosperous. In addition the
stockholders and managers, for the most part, were his political
opponents. Moreover, the Second Bank of the United States was
unregulated and also seriously interfered with the operations of the
state banks, some of which were managed by friends of Jackson.
Jackson's Bank War was supported by many people.
Andrew Jackson and the Bank War: The Bank War becomes an Election
Issue
The bank's charter was due to
expire in 1836. In his first message to Congress, Andrew Jackson
gave notice that he would not give his consent to a new charter.
However, as Jackson was elected in 1829 his term in office would
come to an end in 1833. His political opponents, led by Henry Clay
and John Quincy Adams, and including the 40 Congressmen who held
stock in the bank, regarded his message as a challenge.
In 1832 a request was submitted to Congress to renew the
charter four years before the charter was due to expire. A bill was
passed by Congress re-chartering the bank. Jackson vetoed the bill
on July 10, 1832. The opposition were unable to obtain get enough
votes to pass it over his veto. The bank war, therefore, became one
of the issues of the election of 1832.
Andrew Jackson and the Bank War: The War and the Removal of Deposits
to the 'Pet Banks'
Andrew Jackson was re-elected by
a large majority over Henry Clay. The President took his majority as
clear confirmation that the American people believed in his war
against the national banking system. At this period in American
history there was not a Treasury building at Washington, with great
vaults for the storage of gold, silver, and paper money. There were
no sub-treasuries in the important commercial cities. The
Second Bank of the United States
and its branches received the government's money on deposit and paid
it out on checks signed by the appropriate government official. In
1833 the Second Bank of the United States had about $9 million
belonging to the government. President Andrew Jackson directed that
this money should be drawn out as required, to pay the government's
expenses, and that no more government money should be deposited in
the bank. All future deposits were to made in certain state banks -
those that were controlled by Jackson's political friends and
referred to as the 'Pet Banks'.
Andrew Jackson and the Bank War for kids: The Censure of Jackson
The removal of the deposits and use of Pet Banks was deemed
highly questionable, and the Senate led by Henry Clay voted to
censure Jackson for it. The Censure of Jackson involved a demand to
see the cabinet papers regarding the re-chartering veto and
defunding the Second Bank. Jackson
refused and withheld the documents stating that the censure of a President was unconstitutional and
continued favoring the Pet Banks. The censure was expunged (wiped
out) in 1837
Andrew Jackson and the Bank War: The Specie Circular
Large deposits of government
money was deposited in the 'Pet Banks'. But there was a problem.
"Wildcat Banks" sprang up in the West where there was
considerable land speculation. And some of the managers of the "Pet Banks" were
tempted to lend money more freely. Jackson knew this was lead to
yet another financial disaster unless he took action. He therefore
issued a circular to the United States land officers. This circular
was called the Specie Circular, because in it President Jackson
forbade the land officers to receive anything except gold and silver
and certain certificates in payment for the public lands.
What were the Effects of the
Bank War?
The
effects of the
Bank War
was the Payment of the national debt. By 1837 the national
debt had all been paid. This led to a financial dilemma. The
government was collecting more money than it could use for national
purposes which led to a surplus. The government had more money in
the "pet banks" than was deemed safe. But it was unable to reduce
taxes because of the
1833 Compromise Tariff that
had been adopted to
defuse the gravity of the
Nullification Crisis. The Compromise Tariff made it impossible
to reduce duties any faster than a certain amount each year and to
repeal the Compromise Tariff would lead to bitter conflict between
the North and South. However, the problem of the surplus revenues
was not Andrew Jackson's - this would be tackled by the next
President Martin Van Buren.
What was the Significance of the
Bank War?
The significance of the Bank War was that:
-
Andrew
Jackson destroyed the Second Bank of the United States and
centralization was not achieved again until the passage of the
Federal Reserve
Act of 1913
-
The
Whig Party (and the Second Party System) was formed in opposition to
the policies of President Jackson and his
Democratic party
-
The
federal government paid off the national debt in 1835
-
The Specie
Order precipitated the Panic of 1837
The Financial Problems
The financial problems that crippled the economy of
the United States included the
Panic of 1819,
the
Panic of 1837
and the Panic of
1857. |