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Bank War

The Bank War was a political struggle that developed over the issue of rechartering the Second Bank of the United States (B.U.S.) during the presidency of Andrew Jackson (1829–1837). The affair resulted in the shutdown of the Bank and its replacement by state banks.

Bank War

1832–1836[1]

Anti-Bank Victory

The Second Bank of the United States was established as a private organization with a 20-year charter, having the exclusive right to conduct banking on a national scale. The goal behind the B.U.S. was to stabilize the American economy by establishing a uniform currency and strengthening the federal government. Supporters of the Bank regarded it as a stabilizing force in the economy due to its ability to smooth out variations in prices and trade, extend credit, supply the nation with a sound and uniform currency, provide fiscal services for the treasury department, facilitate long-distance trade, and prevent inflation by regulating the lending practices of state banks.[2] Jacksonian Democrats cited instances of corruption and alleged that the B.U.S. favored merchants and speculators at the expense of farmers and artisans, appropriated public money for risky private investments and interference in politics, and conferred economic privileges on a small group of stockholders and financial elites, thereby violating the principle of equal opportunity. Some found the Bank's public–private organization to be unconstitutional, and argued that the institution's charter violated state sovereignty. To them, the Bank symbolized corruption while threatening liberty.


In early 1832, the president of the B.U.S., Nicholas Biddle, in alliance with the National Republicans under Senators Henry Clay (Kentucky) and Daniel Webster (Massachusetts), submitted an application for a renewal of the Bank's twenty-year charter four years before the charter was set to expire, intending to pressure Jackson into making a decision prior to the 1832 presidential election, in which Jackson would face Clay. When Congress voted to reauthorize the Bank, Jackson vetoed the bill. His veto message was a polemical declaration of the social philosophy of the Jacksonian movement that pitted "the planters, the farmers, the mechanic and the laborer" against the "monied interest", benefiting the wealthy at the expense of the common people.[3] The B.U.S. became the central issue that divided the Jacksonians from the National Republicans. Although the Bank provided significant financial assistance to Clay and pro-B.U.S. newspaper editors, Jackson secured an overwhelming election victory.


Fearing economic reprisals from Biddle, Jackson swiftly removed the Bank's federal deposits. In 1833, he arranged to distribute the funds to dozens of state banks. The new Whig Party emerged in opposition to his perceived abuse of executive power, officially censuring Jackson in the Senate. In an effort to promote sympathy for the institution's survival, Biddle retaliated by contracting Bank credit, inducing a mild financial downturn. A reaction set in throughout America's financial and business centers against Biddle's maneuvers, compelling the Bank to reverse its tight money policies, but its chances of being rechartered were all but finished. The economy did well during Jackson's time as president, but his economic policies, including his war against the Bank, are sometimes blamed for contributing to the Panic of 1837.

Prelude to war[edit]

Initial attitudes[edit]

When Jackson entered the White House in March 1829, dismantling the Bank was not part of his reform agenda. Although the President harbored an antipathy toward all banks, several members of his initial cabinet advised a cautious approach when it came to the B.U.S. Throughout 1829, Jackson and his close advisor, William Berkeley Lewis, maintained cordial relations with B.U.S. administrators, including Biddle, and Jackson continued to do business with the B.U.S. branch bank in Nashville.[67][68][69]


The Second Bank's reputation in the public eye partially recovered throughout the 1820s as Biddle managed the Bank prudently during a period of economic expansion. Some of the animosity left over from the Panic of 1819 had diminished, though pockets of anti-B.U.S. sentiment persisted in some western and rural locales.[70][71] According to historian Bray Hammond, "Jacksonians had to recognize that the Bank's standing in public esteem was high."[72]


Unfortunately for Biddle, there were rumors that the Bank had interfered politically in the election of 1828 by supporting Adams. B.U.S. branch offices in Louisville, Lexington, Portsmouth, Boston, and New Orleans, according to anti-Bank Jacksonians, had loaned more readily to customers who favored Adams, appointed a disproportionate share of Adams men to the Bank's board of directors, and contributed Bank funds directly to the Adams campaign. Some of these allegations were unproven and even denied by individuals who were loyal to the President, but Jackson continued to receive news of the Bank's political meddling throughout his first term.[73] To defuse a potentially explosive political conflict, some Jacksonians encouraged Biddle to select candidates from both parties to serve as B.U.S. officers, but Biddle insisted that only one's qualifications for the job and knowledge in the affairs of business, rather than partisan considerations, should determine hiring practices.[74] In January 1829, John McLean wrote to Biddle urging him to avoid the appearance of political bias in light of allegations of the Bank interfering on behalf of Adams in Kentucky. Biddle responded that the "great hazard of any system of equal division of parties at a board is that it almost inevitably forces upon you incompetent or inferior persons in order to adjust the numerical balance of directors".[75]


By October 1829, some of Jackson's closest associates, especially Secretary of State Martin Van Buren, were developing plans for a substitute national bank. These plans may have reflected a desire to transfer financial resources from Philadelphia to New York and other places.[76] Biddle carefully explored his options for persuading Jackson to support recharter.[77] He approached Lewis in November 1829 with a proposal to pay down the national debt. Jackson welcomed the offer and personally promised Biddle he would recommend the plan to Congress in his upcoming annual address, but emphasized that he had doubts as to the Bank's constitutionality. This left open the possibility that he could stymie the renewal of the Bank's charter should he win a second term.[78][79][80]

Annual address to Congress, December 1829[edit]

In his annual address to Congress on December 8, 1829,[81] Jackson praised Biddle's debt retirement plan, but advised Congress to take early action on determining the Bank's constitutionality and added that the institution had "failed in the great end of establishing a uniform and sound currency". He went on to argue that if such an institution was truly necessary for the United States, its charter should be revised to avoid constitutional objections.[66][82] Jackson suggested making it a part of the Treasury Department.[83]


Many historians agree that the claim regarding the Bank's currency was factually untrue.[66][84][85][86][87] According to historian Robert V. Remini, the Bank exercised "full control of credit and currency facilities of the nation and adding to their strength and soundness".[66] The Bank's currency circulated in all or nearly all parts of the country.[83] Jackson's statements against the Bank were politically potent in that they served to "discharge the aggressions of citizens who felt injured by economic privilege, whether derived from banks or not".[88] Jackson's criticisms were shared by "anti-bank, hard money agrarians"[89] as well as eastern financial interests, especially in New York City, who resented the national bank's restrictions on easy credit.[90][91] They claimed that by lending money in large amounts to wealthy well-connected speculators, it restricted the possibility for an economic boom that would benefit all classes of citizens.[59] After Jackson made these remarks, the Bank's stock dropped due to the sudden uncertainty over the fate of the institution.[92]


A few weeks after Jackson's address, Biddle began a multi-year, interregional public relations campaign designed to secure a new Bank charter. He helped finance and distribute thousands of copies of pro-B.U.S. articles, essays, pamphlets, philosophical treatises, stockholders' reports, congressional committee reports, and petitions.[93] One of the first orders of business was to work with pro-B.U.S. Jacksonians and National Republicans in Congress to rebut Jackson's claims about the Bank's currency. A March 1830 report authored by Senator Samuel Smith of Maryland served this purpose. This was followed in April by a similar report written by Representative George McDuffie of South Carolina. Smith's report stated that the B.U.S. provided "a currency as safe as silver; more convenient, and more valuable than silver, which ... is eagerly sought in exchange for silver".[94][95] This echoed the arguments of Calhoun during the charter debates in 1816.[96] After the release of these reports, Biddle went to the Bank's board to ask for permission to use some of the Bank's funds for printing and dissemination. The board, which was composed of Biddle and like-minded colleagues, agreed.[97] Another result of the reports was that the Bank's stock rose following the drop that it experienced from Jackson's remarks.[98]

Recharter[edit]

Post-Eaton cabinet and compromise efforts[edit]

After replacing most of his original cabinet members, Jackson included two Bank-friendly executives in his new official cabinet: Secretary of State Edward Livingston of Louisiana and Secretary of the Treasury Louis McLane of Delaware.[115][116]

Jackson's dismantling of the B.U.S.[edit]

Renewal of war and 1832 address to Congress[edit]

Jackson regarded his victory as a popular mandate[215] to eliminate the B.U.S. before its 20-year term ended in 1836.[216][217] During the final phase of the 1832 election campaign, Kendall and Blair had convinced Jackson that the transfer of the federal deposits—20% of the Bank's capital—into private banks friendly to the administration would be prudent.[218] Their rationale was that Biddle had used the Bank's resources to support Jackson's political opponents in the 1824 and 1828 elections, and additionally, that Biddle might induce a financial crisis in retaliation for Jackson's veto and reelection.[219] The President declared the Bank "Scotched, not dead".[217][220]


In his December 1832 State of the Union Address, Jackson aired his doubts to Congress whether the B.U.S. was a safe depository for "the people's money" and called for an investigation.[217][220] In response, the Democratic-controlled House conducted an inquiry, submitting a divided committee report (4–3) that declared the deposits perfectly safe.[221] The committee's minority faction, under Polk, issued a scathing dissent, but the House approved the majority findings in March 1833, 109–46.[220] Jackson, incensed at this "cool" dismissal, decided to proceed as advised by his Kitchen Cabinet to remove the B.U.S. funds by executive action alone.[222] The administration was temporarily distracted by the Nullification Crisis, which reached its peak intensity from the fall of 1832 through the winter of 1833.[223] With the crisis over, Jackson could turn his attention back to the Bank.[217]

Search for a Treasury secretary[edit]

Kendall and Taney began to seek cooperative state banks which would receive the government deposits. That year, Kendall went on a "summer tour" in which he found seven institutions friendly to the administration in which it could place government funds. The list grew to 22 by the end of the year.[224] Meanwhile, Jackson sought to prepare his official cabinet for the coming removal of the Bank's deposits.[221][225] Vice President Martin Van Buren tacitly approved the maneuver, but declined to publicly identify himself with the operation, for fear of compromising his anticipated presidential run in 1836.[226][227] Treasury Secretary McLane balked at the removal, saying that tampering with the funds would cause "an economic catastrophe", and reminded Jackson that Congress had declared the deposits secure.[228] Jackson subsequently shifted both pro-Bank cabinet members to other posts: McLane to the Department of State, and Livingston to Europe, as U.S. Minister to France.[229] The President replaced McLane with William J. Duane, a reliable opponent of the Bank from Pennsylvania.[229] Duane was a distinguished lawyer from Philadelphia whose father, also William Duane, had edited the Philadelphia Aurora, a prominent Jeffersonian newspaper. Duane's appointment, aside from continuing the war against the Second Bank, was intended to be a sign of the continuity between Jeffersonian ideals and Jacksonian democracy. "He's a chip of the old block, sir", Jackson said of the younger Duane.[230] McLane met Duane in December 1832 and urged him to accept appointment as Treasury Secretary. He sent a letter of acceptance to Jackson on January 13, 1833, and was sworn in on June 1.[231]


By the time Duane was appointed, Jackson and his Kitchen Cabinet were well-advanced in their plan to remove the deposits.[226][229] Despite their agreement on the Bank issue, Jackson did not seriously consider appointing Taney to the position. He and McLane had disagreed strongly on the issue, and his appointment would have been interpreted as an insult to McLane, who "vigorously opposed" the idea of Taney being appointed as his replacement.[232]

The Bank's final years[edit]

Demise of the Bank of the United States[edit]

The economy improved significantly in 1834. Biddle received heavy criticism for his contraction policies, including by some of his supporters, and was compelled to relax his curtailments. The Bank's Board of Directors voted unanimously in July to end all curtailments.[283][284] The Coinage Act of 1834 passed Congress on June 28, 1834. It had considerable bipartisan support, including from Calhoun and Webster. The purpose of the act was to eliminate the devaluation of gold in order for gold coins to keep pace with market value and not be driven out of circulation. The first Coinage Act was passed in 1792 and established a 15 to 1 ratio for gold to silver coins. Commercial rates tended towards about 15.5-1. Consequentially, a $10 gold eagle was really worth $10.66. It was undervalued and thus rarely circulated. The act raised the ratio to 16 to 1. Jackson felt that, with the Bank prostrate, he could safely bring gold back. It was not as successful as Jackson hoped.[285] However, it did have a positive effect on the economy, as did good harvests in Europe. The result was that the recession that began with Biddle's contraction was brought to a close.[283][284] For his part, Jackson expressed his willingness to recharter the Bank or establish a new one, but first insisted that his "experiment" in deposit banking be allowed a fair trial.[286]


Censure was the "last hurrah" of the Pro-Bank defenders and soon a reaction set in. Business leaders in American financial centers became convinced that Biddle's war on Jackson was more destructive than Jackson's war on the Bank.[287][288][289] All recharter efforts were now abandoned as a lost cause.[269] The national economy following the withdrawal of the remaining funds from the Bank was booming and the federal government through duty revenues and sale of public lands was able to pay all bills. On January 1, 1835, Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.[290] The objective had been reached in part through Jackson's reforms aimed at eliminating the misuse of funds, and through the veto of legislation he deemed extravagant.[291] In December 1835, Polk defeated Bell and was elected Speaker of the House.[292]

Legacy[edit]

The Bank War far from settled the status of banking in the United States. Van Buren's solution to the Panic of 1837 was to create an Independent Treasury, where public funds would be managed by government officials without assistance from banks.[330] A coalition of Whigs and conservative Democrats refused to pass the bill. It was not until 1840 that the Independent Treasury system was finally approved.[331] When Whig candidate William Henry Harrison was elected in 1840, the Whigs, who also held a majority in Congress, repealed the Independent Treasury, intending to charter a new national bank. However, Harrison died after only a month in office, and his successor, John Tyler, vetoed two bills to reestablish the Bank.[332] The nation returned to deposit banking.[333] The Independent Treasury was recreated under the Polk presidency in 1846.[332] The United States would not have another central banking system again until the Federal Reserve was established in 1913.[334]


The Bank War has proven to be a controversial subject in the scholarly community long after it took place.[334] Quite a few historians over the years have proven to be either extremely celebratory or extremely critical of Jackson's war on the Bank. However, many agree that some sort of compromise to recharter the Bank with reforms to restrict its influence would have been ideal.[335][336][337]


1930s Jackson biographer Marquis James commemorates Jackson's war against the Bank as the triumph of ordinary men against greedy and corrupt businessmen. Arthur M. Schlesinger Jr., who wrote The Age of Jackson (1945), adopts a similar theme, celebrating Jacksonian democracy and representing it as the triumph of Eastern workers. Schlesinger portrays Jackson's economic program as a progressive precursor to the New Deal under Franklin D. Roosevelt.[334] Robert V. Remini believes that the Bank had "too much power, which it was obviously using in politics. It had too much money which it was using to corrupt individuals. And so Jackson felt he had to get rid of it. It is a pity because we do need a national bank, but it requires control." He refutes the idea that the collapse of the Bank was responsible for the Panic of 1837, which he describes as "a world-wide economic collapse", but concedes that it "may have exacerbated" the crisis.[335]


Richard Hofstadter accepts that the Bank had too much power to interfere in politics but excoriates Jackson for making war on it. "By destroying Biddle's Bank Jackson had taken away the only effective restraint on the wildcatters ... he had strangled a potential threat to democratic government, but at an unnecessarily high cost. He had caused Biddle to create one depression and the pet banks to aggravate a second, and he had left the nation committed to a currency and credit system even more inadequate than the one he had inherited." Hofstadter criticizes Schlesinger's contention that Jackson's program was a forerunner to the New Deal, arguing that the two were distinct because Jackson wanted less government involvement in finance and infrastructure, while Roosevelt wanted more.[336] Hammond, in his Banks and Politics in America from the Revolution to the Civil War, renews the criticism of Schlesinger. He praises the Bank and Biddle's conduct, claiming that Jackson's war on it created a period of economic instability that would not be remedied until the creation of the Federal Reserve in 1913. Historian Jon Meacham, in his 2008 biography of Jackson, concludes that the destruction of the Bank went against the country's interests.[334]


Daniel Walker Howe criticizes Jackson's hard money policies and claims that his war on the Bank "brought little if any benefit" to the common men who made up the majority of his supporters. In the end, he believes, the government was deprived of the stabilizing influence of a national bank and instead ended up with inflationary paper currency. "It was America's failure that the future of the national bank could have been resolved through compromise and a larger measure of government supervision", Howe writes. "Jackson and Biddle were both too headstrong for the country's good. The great Bank War turned out to be a conflict both sides lost."[337]