By 1816, noted financial historian Susan Hoffman, "Reformed Jeffersonians...had concluded that banking was with us and must be regulated to ensure its consistency with the Jeffersonian concept of the public interest, which emphasized protection of the freedom and equality of individuals. 12 House Speaker Henry Clay also was hurt by the financial contraction caused by the bank. 155 ." Preparations were made for a successor institution. Reform was thus the dominant theme of a second phase of operations under bank president Langdon Cheves (1819-23)." Historian Gordon S. Wood noted that "the more important enemies of the BUS were the state banks. Historian Harlow Giles Unger wrote: "Inflated by speculation in western lands, an economic `bubble' suddenly popped, with hundreds of banks shutting down, and thousands of depositors and investors wiped. 4, The War of 1812 would soon demonstrate the clear need for a government bank to help fund growing government expenses not covered by the nation's limited tariff revenue. 42 In September 1830, Clay wrote Biddle a prescient strategy memo - which Clay would overrule as the presidential election of 1832 approached: President Jackson, if I understand the paragraph of his message at the opening of the last Session of Congress, relating to the Bank, is opposed to it upon Constitutional objections. Historian William Graham Sumner wrote: "There was a kind of poetic justice in the fact that Van Buren had to bear the weight of all the consequences of Jackson's acts which Van Buren had allowed to be committed, because he would not hazard his standing in Jackson's favor by resisting them. Economic historian Peter L. Rousseau wrote: "The Panic of 1837 was a watershed even for the U.S. economy. By regularly redeeming the outstanding notes of the state banks, the BUS had checked their ability to issue notes too far in excess of what they could cover with specie, that is, their reserves, and this had become a deep source of anger....When the twenty-year charter of Hamilton's BUS was about to expire in 1811, it was not surprising that these state banks were determined that it would not be renewed." They blamed it for doing what its business enemies blamed it for not doing, i.e., making credit cheap and easy. In early July, the recharter legislation passed Congress, 28-20 in the Senate and 167-85 in the House of Representatives. Inflation became rampant after federal deposits to the Second Bank of the United States were withdrawn, based on the assumption that the government was selling land for state bank notes of questionable value. 68 As Bray Hammond summarized the factors causing the BUS's demise: The 1832 presidential campaign represented a small revolution in American politics. Jackson expanded his criticisms a year later, and proposed a possible replacement for the BUS: a wholly public institution with no private directors or stockholders, shorn of the power to extend loans or purchase property, but capable of retraining state banks from irresponsibly issuing paper." Other sources of information corroborate that fact. Those defaults, in turn, strained Jackson's finances." I have been met at every point by numerous democratic-republican friends and many repenting whigs, with a hearty welcome and expressions of `well done thou faithful servant.' Democrats held the first national presidential convention. Instead of extending credit, he curtained it drastically, hoping to induce a recession that would force Americans, and Jackson, to beg for mercy." 129 The boom was unsustainable. Historian John Steele Gordon wrote: "Jackson had no objection to self-made men like himself who sought only their own economic advancement and contributed thereby to the increased wealth of the country. Jackson, not exactly a man to back away from a fight, was only too happy to take up the challenge." `The great vice of our Government,' Paulding observed, `is meddling legislation.' 107 Historian James Schouler noted: By 1834 there were some five hundred or more local banks in the United States whose aggregate circulation was several times greater than that of the monster bank which Jackson's pack was running down; and, as clear observers noted, the coexistence of half a thousand distinct currencies in this country was the great defect of its financial system. For the bourgeoisie, it quelled the conflict of labor militancy and Bank War. Biddle also indirectly controlled the votes of thousands through favorable loans, generous terms, and easy access to cash. Hence the BUS was a guaranteed conduit funneling capital and credit to the West and South rather than squeezing them." When most state banks suspended the pretense of specie redemption, a flood of business failures and personal liquidations plunged Americans into their first experience of general and devastating economic prostration." In his annual message the President announced that he had been forced to remove the deposits from the Bank because it had been `attempting to influence the elections of public officers.' 37 It is was sometimes difficult to separate differences of personality from differences of policy but attitudes toward the role of gold certainly were a major point of difference in the economy. "As his father had done some four decades earlier, Hamilton pulled an all-nighter, but in this case to fire the first salvo in a Bank War, not to have the last word in a gentlemanly debate. While Jackson was economically misguided in his opposition to the BUS, Nicholas Biddle was economically wise but politically foolish in the way he pursued its recharter. Jackson's Treasury secretaries did not possess their predecessors' financial and administrative expertise, but the early ones did try to protect the bank politically. The most important was the impatience of the state banks and of business enterprise with the federal Bank's restraint upon bank credit. Two months later, New York City banks suspended specie payments. When bills are redeemable at sight in specie, banks will hoard bullion to meet the demands at their counter; the community prefer paper meantime as their more convenient medium of traffic, since the sound currency of a nation is not gold, but the paper which is as good as gold. Amos Kendall, the driving intellectual force, behind Jackson urged action. But exhorting ordinary Americans to choose the `robber' Biddle over the saintly Jackson was like goading them to cry for Barnabas and crucify Jesus. 75 Indeed noted Jackson biographer David S. Reynolds wrote: "The election became largely a referendum on the Bank of the United States. Indeed, the panic, which was due so much to a temporary tightness and fears not realized of something worse, began to mend by midsummer. High prices and high rents had already before the election produced strikes, trades-union conflicts, and labor riots, things which were almost unprecedented in the United States." The government had paid their debts. In their arguments against the bullionist party, they talked as if they believed that, if the public Treasury did its own business, and did it in gold, it would get possession of all the gold in the country, and that this would give it control of all the credit in the country, because the paper issue was based on gold." 13, Although bad for Clay and the nation's economy, the Panic of 1819 had been good for the BUS. Jackson had been paying down the debt since his first day in office, in the Jeffersonian belief that the debt was a Federalist plot to fatten bankers and subvert the republic. ", Economically, Jackson's judgement regarding the transfer of funds to pet banks was flawed. Although the national Bank was chartered for seven more years, he urged Congress and country to begin considering alternatives. Upon the supposition of such a rejection, and that the question should be afterwards blended with the Presidential contest, and Gen'l Jackson should be elected, his re election would amount to something like a popular ratification of the previous rejection of the renewal of the charter of the Bank. Biddle stood for the power of the elite and financial stability. This contradicted the hard money policy because it called for cheaper money and expansion of credit so that those with little or no savings could take up enough acreage for a self-sufficient farm. The problems with limited specie circulation were compounded by problems regarding the excessive kinds of bank notes in circulation. The young Hamilton wrote that `both the constitutionality and the expediency of the law creating the bank are well questioned by a large portion of our fellow-citizens.'" Paul Finkelman and Donald R. Kennon, editors. By weakening public confidence in paper currency at a time when the United States practiced fractional reserve banking, adhered to an international gold standard, curtailed branching by state-chartered banks, and lacked a national lender of last resort, Jackson's war against the Bank generated more casualties than just the institution itself." 133 The next day, Jackson was succeeded by Martin Van Buren. Woodrow Wilson wrote: "The President and his spokesmen had nothing to propose for the relief of business. If he should act upon that opinion, and reject a bill, presented for his approbation, it would be impossible to get it through Congress at the next Session against the Veto. 126, While stifling speculation on one hand, Jackson had promoted it with the another. Saving the deposit banks, according to this view, was only a secondary part of the Jacksonian heritage; the primary goal remained one of enlarging the amount of specie in circulation." 112, The transfer of deposits to the state banks helped fuel land speculation. He was clearly worried about Jackson's reaction as well as the diverse opinions within his own party. In the bare-knuckle politics of the era, when most newspapers were openly partisan and tendentious in their coverage, the fight over the bank was a brawl." The banks' resumption of specie payment in 1838 proved brief. Historian Charles Sellers wrote: "National Republicans pressed Biddle to request recharter before the election, arguing that Jackson would either have to acquiesce or be defeated for destroying an invaluable institution. Accordingly, he ordered the Treasury to issue a specie circular requiring that public lands be bought with hard money. A week later his resounding veto message went to Congress." John Steele Gordon wrote: "By the time Biddle became president, most of the animosity against the bank had disappeared, thanks to economic recovery and sound policy on the part of the bank. Instead, he proposed a set of economic proposals that September - the most of important of which - an independent Sub-Treasury - Congress refused to pass. Jackson would bluster but finally yield to the will of Congress....Biddle was motivated solely by what he deemed best for the institution over which he ruled like a petty prince. He admitted that `bundles of letters' every day urged him to take a new course; and Senator Silas Wright of New York, Van Buren's closest and most trusted adviser, believed that a majority in his state wanted a change,' wrote historian Major L. Wilson. Contemporary `hard money' advocates viewed it as a result of expanding paper money issues in an inadequately regulated banking sector bloated by the government deposits that had been removed from the Second Bank of the United States three years earlier." This purpose was laudable," wrote Bray Hammond. Specie and the Specie Circular
As President he showed the honorable desire to have a statesman-like and high-toned administration, and perhaps to prove that he was more than a creature of Jackson's whim. 35 Jackson biographer David S. Reynolds wrote: "Jackson viewed the BUS as a fountain head of the evils that he thought came from aristocratic privilege and centralized government." Surely the American people now realized how essential the institution was for the financial stability of the country. Jackson biographer Donald Cole wrote: "While Jackson retreated to the Hermitage, his party ran a new-style campaign, using card files, passing out buttons, and carrying illuminated transparencies at night in their parades. Without a national bank, the federal government lacked to the tools to deal with the situation. Pessimism abounded during the time. [U.S. Minister to England Martin] Van Buren hastening back from London, reached the White House at midnight on July 3, just after the bill's arrival, to find the President ill but resolute. Biddle was the enemy. 3. 145 Woodrow Wilson observed: In the face of economic contraction and political opposition, Van Buren maintained his course. The administration now undertook to introduce a metallic currency for small amounts; this was done by inducing the State banks which took the public deposits to stop issuing paper notes under five dollars, then larger ones such as ten dollars, and finally, with all the aid possible from State legislatures, to restrict bank notes to twenty dollars and upwards. Clay, known for his role in forging the Missouri Compromise and later the Compromise of 1850, girded for political warfare. To be sure, the veto did `cause all the Election to be contested on the principle of Bank or no Bank' and invite journals such as the North American Review to warn of `wild and reckless speculation, ruined confidence, worthless currency, and prostrate and broken credit.' The new Secretary of the Treasury, Levi Woodbury, urged them to build up their specie reserve and to curtail their issue of small notes, but had not way of enforcing his request unless he withdrew the deposits altogether. 20 Jackson represented a new wave of populist politics. By the beginning 1832, when was preparing to run for reelection, Jackson ran for reelection, it was clear that he intended to kill the bank. Historian Reginald Charles McGrane wrote: "The panic of 1837 was one of the most disastrous crises this nation has ever experienced. In his annual message of December 1831 he had barely mentioned the subject. Jackson had done a far better job defining the economic and political situation than Biddle could or would. In 1837, prices bubbled around land, cotton, and slaves. He had deliberately shut out Congress by executing the deposit removal while it was out of session, had he had run roughshod over his own cabinet, effectively reducing the Treasury secretary from his statutory role as a quasi independent custodian of the federal purse to a mere subordinate functionary, a Lackey of the president's will." You would say what ought the Corporation to do? He was, however, a man of more than average ability, and he appears to have been conscious of lowering himself by the political manoeuvring which he had practised. 70 Jackson outsmarted them all. As specie was at a premium, it was hoarded by those who possessed it, and to carry on necessary business transactions, small bills became the medium of exchange," wrote Reginald Charles McGrane. In response to the veto, Biddle wrote Henry Clay, by then himself a presidential candidate, on August 1: Congressional supporters of the Bank did not give up. On May 21, 1838, a joint resolution of Congress repealed the Specie Circular. 97 Biddle may have been willing to fight, but he was no match for the old general. The Panic of 1837 seemed to vindicate Nicholas Biddle, who had warned that without the BUS to monitor credit and control currency, the economy would run rampant and finally wreck. Fiscal and monetary policies in the United States and Great Britain, the global movements of gold and silver, a collapsing land bubble, and falling cotton prices were all to blame. The Bank War was a political struggle that developed over the issue of rechartering the Second Bank of the United States (B.U.S.) 104, In early 1834, National Republicans used the Democrats' narrow majority in the Senate to launch a campaign against the removal of deposits. 138 Faced with conflicting opinions even in his own cabinet, Van Buren decided not to consult them. The clashes between Jackson and Biddle likely contributed to the Panic of 1837, a major economic crisis that impacted the U.S. and doomed the presidency of Jackson's successor, President Van Buren. Rousseau observed: "The Panic of 1837 was the culmination of a series of policy shifts and unanticipated disturbances that shook the young U.S. economy at the core of its financial structure - the banks of New York City. Jackson was prone to see conspiracies all around him. Historian Reginald Charles McGrane wrote: "By the spring of 1835 the country apparently had forgotten its past disorders. Jackson came into presidency in 1829 determined to eliminate the national debt, the management of which was one of the purposes of the national bank. Taney demonstrated that Biddle had bought favorable press coverage for the bank during the fight for renewal of the charter; this practice, of employing the people's money to manipulate the democratic process, was `pregnant with so much evil,' Taney told Jackson, that it alone was cause for the severest censure. According to John Steele Gordon, Biddle "hoped that Jackson would not want to make it a campaign issue. And that I believe would emphatically be the fate of the present President. Removal of Deposits by Roger B. Taney
That a strong party, headed by Mr. V. Buren, some Virginia politicians and the Richmond Enquirer, intend, if practicable to make the Bank question the basis of the next Presidential election, I have, I believe, heretofore informed you. Peterson wrote: "Without revealing the depth of his hostility to the Bank, he gradually made known his determination either to convert the institution into a branch of the treasury or to overthrow it. Every quarter of the Union, every State, every district having party constituents to please, must run with its barrel, its pitcher, or its cup to share the Pactolian stream which spouted from the national Treasury. Given the fact that the bank was the government's principal mechanism for collecting internal revenue and its only one for raising loans, the defeat of the charter was perhaps the most feckless act in the history of the United States Congress, although, to be sure, that is a title for which there has been no little competition over the years." On May 21, 1838, a joint resolution of Congress repealed the Specie Circular. 147. A masterpiece of political propaganda aimed directly at voters, Jackson's veto message denounced the Bank as an unconstitutional excess of national authority, as a monstrous concentration of private power that threatened popular liberty, and as an engine of aristocratic privilege that favored the rich at the expense of the poor." "There, on February 20th, the Senate tied 17-17 on another preliminary matter, and Vice President George Clinton, in perhaps the only significant independent act by a vice president in American history, voted against the bank. In the absence of laws requiring banks to hold sufficient reserves of specie and or specie-backed bonds (or both) to back up their paper instruments, evisceration of the BUS all but invited `wildcat banks' (a term invented in frontier Michigan) to issue all the loans and `rag money' the market would bear. 88 Economic historian Susan Hoffman wrote of BUSII: "This ended its service as the government's fiscal agent. But suppose, at the next Session, on the contingency of your application for a renewal of the Charter, instead of postponing, Congress was to pass a bill for that object, and it should be presented to the President, what would he do with it? Brands noted: "Vetoes were rare in the days before Jackson; his six predecessors had turned back but ten bills total. 157, The causes for the Panic of 1837 were manifold although the weighting of the causes has long been debated. If you enjoyed this article, read about the Panic of 1837. The 17 percent drop in price that ensued between then and the end of April, or from 13.8 cents to 11.5 cents per pound, appears to have been a result of overproduction in the United States and heightened competition in the British market from India, whose cotton exports underwent a rapid expansion at precisely this time. 85. This confirmed earlier reports of reductions in foreign demand. The Panic of 1837 was one such incident involving an unstable currency and financial system resulting in a lack of confidence in both government and the banks. 9 This period has been dubbed the "Era of Good Feelings," but it was not the era of good economic leadership or economic prosperity. Economic historian Charles Sellers wrote: "When a Democratic Congress again proved deaf to criticism of Biddle's Bank, Old Hickory and his anti-bank coterie launched a class appeal over the heads of the politicians. Historian Walter A. McDougall wrote that Amos "Kendall, the principal author of Jackson's veto message,... ignored serial Supreme Court decisions, the will of the Congress, and Biddle's responsible record. 131 Historian William Graham Sumner wrote: "Van Buren was now at the height of his ambition; but the financial and commercial storm which had been gathering for two or three years, the accumulated result of rash ignorance and violent self-will acting on some of the most delicate social interests, was just ready to burst. His anti-BUS animus was so strong that he was the only department head whom Jackson also admitted to his `kitchen cabinet' inner circle. "In a management move that would prove not as helpful to the bank as his other changes, Biddle distanced himself from the secretary of the Treasury. Rather, speculation was so intense that it created an extraordinary and somewhat unexpected demand for specie in the West and Southwest. Understanding the Bank Panic of 1907 . Party debate over who was to blame for the crisis reached a new level of intensity. The panic of 1837 was a financial crisis in the United States that triggered a multi-year economic depression. 82 Historian Arthur M. Schlesinger, Jr., wrote: "Jackson seems to have decided on this course shortly after his re-election. Economic historian Charles Sellers wrote: "The full audacity of Old Hickory's [veto] strategy was revealed only at the end of the message, in a brief but sensational attack on the only bank for which he had any constitutional responsibility, however remote. By the spring of 1837 as Van Buren was succeeding Jackson in the presidency, a deep depression was taking hold as credit contracted. Prominent among them were Senator [Nathaniel P.] Tallmadge of New York, who was already noted as a special friend of the `credit system,' and Senator William C. Rives of Virginia." Many of the newer banks were speculative ventures pure and simple, whose managers were operators in the worst sense of the world." Crop failures in 1835 and 1837 not only made it impossible for farmers to meet their obligations, but also decreased our exports to Europe. Woodrow Wilson wrote: "The folly of staking the fortunes of the Bank against the popularity of General Jackson at the polls was quickly enough demonstrated. `The bank, Mr. Van Buren, is trying to kill me,' he said, `but I will kill it." 160. Led by Henry Clay, they opposed the Bank of the United States because its regulatory hand got in the way of state banks and because its dominance of U.S. government deposits kept those deposits out of state bank vaults." McDougall wrote: "Jackson's scruples about states' rights did not permit him to countenance a federal surplus. The Senator responded gallantly that if the people did support the administration, he would fear self-government had failed; but it is noticeable that he did not take up the Vice-President's wager." He ordered the Treasury Department to withdraw the national government's deposits from the Second bank and place them in so-called `pet banks,' state-chartered banks loyal to the Jackson administration." 71 Historian Michael Holt wrote that "overly eager National Republicans had forged a mace with which Jackson could bludgeon them, not a sword for their champion. Daniel Webster and Henry Clay helped to prepare the petition for recharter which was presented to Congress in January 1832. Democrats asked voters to choose between the forces of entrenched aristocracy and simple government, between a foreign dictatorship and a native American hero, between corruption and innocence - between the Bank and Andrew Jackson."