One of the main priorities of the Jackson administration was to address the Second Bank of the United States. Jackson’s handling of the issue became known as the Bank War of 1832 and would have important and lasting effects on the economy and commerce in the United States.
Andrew Jackson won the presidential election of 1828 riding a wave of popular support. Jackson’s supporters rallied against the “establishment” that allegedly conspired against Jackson in the election of 1824 or “corrupt bargain.”
While Jackson was truly a representative of the “common man,” he had strong opinions regarding many federal institutions including the national bank, then known as the Second Bank of the United States (SBUS).
One of the last acts of the Madison presidency was to charter the SBUS in 1816 to a twenty year term.
In keeping with the lessons learned from the important War of 1812, even hard-line Jeffersonian Democrats like Madison realized that a national bank was crucial to help stabilize the US economy.
However, Andrew Jackson personally detested the national bank, believing it to be an evil and unconstitutional institution.
One of Jackson’s biggest priorities was to ensure the bank would not get rechartered after his election in 1828. The subsequent struggle between Jackson and bank supporters would go on to be known as the Bank War.
Eventually Jackson would win the political struggle as he vetoed a bill to recharter the SBUS in 1832. The effects of the Bank War would be very important as the US economy struggled to adapt following the decentralization of monetary policy.
The Jacksonian Era
The Bank War featured prominently during the Jacksonian Era, or the “Era of the Common Man,” where Jackson made it his personal mission to reform or destroy the national bank.
Jackson opposed a national bank on the basis of strict Jeffersonian idealism. To Jackson and many Jeffersonians, banks were the instruments that the rich used to remain wealthy through oligarchical mechanisms.1
The fear of a wealthy upper-class oligarchy was prominent in the American psyche at the time. Jackson and his supporters capitalized on this fear and directed it towards the national bank.
A vast majority of Americans at the time, educated or not, were completely unaware of the role the national bank played in the US economy. The complex issues of monetary policy, handing of specie (hard money) reserves, and coordination of domestic and international trade were not easily conveyed to the public.1
SBUS President Nicholas Biddle stated that opposition to the original First Bank of the United States (in existence from 1791-1811) “was the result of a downright ignorance of its meaning and operation.”1
While Biddle attempted to educate the public on the massively important role of the national bank, it was to no avail. The public preferred much simpler explanations of the bank’s role instead of long, in-depth analyses.
Unfortunately for the bank, opponents often issued these simpler explanations that helped shape public opinion. The bank’s failure to prevent and accurately respond to the Panic of 1819 did it no favors, despite additional controls and new leadership since the economic depression.1
With the national bank’s original twenty year charter expiring in 1836, political opponents of Andrew Jackson convinced Biddle to submit the application for recharter in 1832 ahead of Jackson’s reelection bid.
Jackson’s forceful response and subsequent actions form the important events of the 1832 Bank War.
The Bank War of 1832 Timeline
The timeline of the Bank War began as early as 1829 and lasted until 1836, though the effects could be felt into the early 1840s following the Panic of 1837.
Dec 1828: Andrew Jackson wins the critical election of 1828 via a wave of popular support.
Dec 1829: Jackson’s annual message to Congress outlines suggestions to reform SBUS and questions the constitutionality of the national bank.2
Dec 1831: Treasury Secretary Louis McLain releases plan in favor of rechartering the SBUS amid various Jackson-favored reforms.
Jan 1832: Bank President Nicholas Biddle submits Bank Recharter Bill, four years before it is due to expire, without any of the requested reforms from Jackson. Jackson’s opponents convinced Biddle that Jackson would not veto the bill ahead of the 1832 presidential election.
Jul 1832: Bank Recharter Bill passed both houses of Congress. Jackson forcefully vetoed the bill on July 10 declaring, “The Bank… is trying to kill me, but I will kill it.”
Dec 1832: Jackson wins reelection after defeating Henry Clay in a landslide. His reelection virtually ended all chances of the national bank recharter.
Sep 1833: Jackson instructs federal deposits to be removed from the national bank and deposited into various state banks referred to as “pet banks.”
Sep 1833: In response Biddle purposefully stockpiled bank reserves and contracted available credit, beginning a mild economic panic that the US soon recovered from.
Jan 1835: Jackson follows through on his election promise by eliminating the national debt.
Jun 1836: Congress passes the Deposit and Distribution Act which has the effect of transferring federal revenues from the east to the west, allowing rampant speculation, and decreased lending power from eastern banks.
Jul 1836: Jackson issued the Specie Circular requiring payment for public lands in gold and silver.
Apr 1837: The significant Panic of 1837 begins just as Martin Van Buren takes office. Jackson’s bank policies are largely to blame for the depression.
Effects of the Bank War
The effects of Jackson’s vendetta in the Bank War of 1832 meant that state banks were left without controls, guidance, or support and became subject to massive speculation and foreign influence, resulting in the financial crisis of the Panic of 1837.
Jackson’s forceful veto of the bank bill and his subsequent actions certainly contributed to the Panic of 1837, but Jackson cannot take sole blame. Bank President Nicholas Biddle did not seek compromise with Jackson over some of the valid issues with the bank that Jackson presented.
Among Jackson’s proposed changes was the banning of foreign stockholders, lowering of the “excessive” size of bank capital at $35M, and the exemption of SBUS from state and local taxes (decided in the important McCulloch v. Maryland case.)3
Instead, Biddle made it an all or nothing affair—a gambit upon which the bank ultimately was the unequivocal loser.
Jackson’s veto set off a series of maneuvers between Jackson and Biddle with each attempting to undermine the other.
In September 1833 Jackson ordered that all federal deposits, ~20% of the total national bank’s deposits, were to be removed from the bank and deposited in various state banks around the nation called “pet banks.”1
Biddle responded by arbitrarily stockpiling bank reserves, tightening credit, and increasing interest rates, leading to a mild financial panic.
Biddle was no politician, and Jackson expertly pinned the blame of the panic on Biddle and the national bank, further sinking the SBUS in the eyes of the public.
This last series of moves doomed the Second Bank of the United States and the entity ceased to exist when its charter expired in 1836.
State banks without central guidance were unable to replicate the system of low volatility and fluctuation in prices that Biddle had implemented. The new system led to an uncontrolled currency with massive speculation which hurt merchants and farmers alike.1
The Bank War was undoubtedly a major cause of the Panic of 1837.
Why was the Bank War of 1832 Important?
The Bank War of 1832 was important and it led to the destruction of the Second Bank of the United States and contributed greatly towards the Panic of 1837.
Prior to the Bank War, SBUS President Nicholas Biddle had the national bank operating smoothly and helping virtually all social classes. The stability of the bank and access to credit helped to spur development, trade, and profit for nearly all participating in the economy.1
All this changed when Jackson effectively dismantled the national bank. The instability of various state bank policies left the nation unprepared to effectively counter massive speculation that threatened to throw the economy into disarray.
Fortunately for Jackson his presidency ended before the deleterious effects of the Bank War were blamed on him. Critics instead pinned the blame on Jackson’s hand-picked successor, Martin Van Buren, despite Jackson’s policies hampering a unified national response.
The Bank War was a highlight of the Jacksonian Era where critical events relating to sectionalism and Native American affairs also ensued.
The controversial 1828 Tariff of Abominations led directly to Jackson’s heavy-handed response to the 1832 Nullification Crisis. In Native American affairs he also failed to enforce the Supreme Court’s ruling in the significant Worcester v. Georgia case and authorized the invalid Treaty of New Echota signed with a minority faction of Cherokee Nation members.
Jackson’s authoritarian tendencies led opponents to declare him as “King Andrew” and helped aid the rise of the Whig party in opposition.
The United States would not have a national bank again until the establishment of the Federal Reserve in 1913.
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To learn more about US history, check out this timeline of the history of the United States.
Sources
1) Govan, Thomas P. “Fundamental Issues of the Bank War.” The Pennsylvania Magazine of History and Biography, vol. 82, no. 3, 1958, pp. 305–15, http://www.jstor.org/stable/20089097.
2) Scheiber, Harry N. “SOME DOCUMENTS ON JACKSON’S BANK WAR.” Pennsylvania History: A Journal of Mid-Atlantic Studies, vol. 30, no. 1, 1963, pp. 46–54, http://www.jstor.org/stable/27770156.
3) Perkins, Edwin J. “Lost Opportunities for Compromise in the Bank War: A Reassessment of Jackson’s Veto Message (Abstract).” Business and Economic History, vol. 14, 1985, pp. 53–56, http://www.jstor.org/stable/23702650.
