Second Bank of the United States
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History
This second bank was patterned after the first. The legality of the Bank was upheld in the 1819 Supreme Court of the United States case McCulloch v. Maryland that also declared null and void any state law contrary to a federal law made in pursuance of the Constitution. The Bank was run by Nicholas Biddle, an upper class, very well educated man of letters with a knack for banking.
However, renewal of the Second Bank was vetoed on July 10, 1832 by Andrew Jackson, and it slowly declined until the expiration of its charter in 1836. The bank became a major campaign issue in 1832, with Jackson supported by the Democrats and Biddle supported by Henry Clay and the newly formed Whig party. Jackson won and the national charter was never renewed, but Biddle kept in operation using a state charter. Tensions were still very high when, in August 1841, President John Tyler vetoed a Whig bill that called for the re-establishment of the Second Bank of the United States.
Controversy
The Second Bank of the United States is largely remembered for Democratic accusations of fraud and corruption. The head of the Second Bank was William Jones. Jones, a friend of James Madison, had declared bankruptcy himself in 1815. He allowed political objectives to guide lending and gave loans to Congress without demanding payment. Under him there was weak oversight of the operations of the many branch offices, allowing widespread chaos and embezzlement in some branches, especially the Baltimore Branch. At the time, there had been a post-war economic boom. American crops were in demand in Europe, due to the devastation of the Napoleonic Wars. The Bank aided this boom by its uncontrolled lending. At the time, land sales for speculation were being encouraged. This lending allowed almost anyone to borrow money and speculate in land, sometimes doubling or even tripling the prices of land. The land sales for 1819, alone, totaled some 55 million acres (220,000 km²). With such a boom, hardly anyone noticed the widespread fraud occurring at the Bank.
However, in the summer of 1818, the national bank managers realized the bank's massive over-extension, and enstated a policy of contraction and the calling in of loans. This recalling of loans curtailed land sales and simultaneously, the US production boom was slowed due to the recovery of Europe. The result was the Panic of 1819 and the situation leading up to McCulloch v. Maryland.
Maryland adopted a policy to restrict banks, by placing a tax on any bank that was not chartered by the state legislature. This tax was either 2% of all assets or a flat rate of $15,000. That meant that the Baltimore Branch would have to pay this hefty tax. McCulloch filed suit against the state in a county court. The case made its way through the courts, all the way up to the United States Supreme Court.
The Bank's decline
At this time, President Andrew Jackson thoroughly disliked the Second Bank of the United States because of its fraud and corruption, and is, in some circles, considered primarily responsible for its demise. Although its charter was bound to run out in 1836, Jackson wanted to "kill" the Second Bank of the United States even earlier.The second Bank of the United States thrived from the tax revenue that the federal government regularly deposited. Jackson struck at this vital point by putting federal tax revenue in other, private banks nicknamed "pet banks" because of their loyalty to Jackson's party. Soon, the Second Bank of the United States began to lose money. Nicholas Biddle, desperate to save his bank, called in (demanded payment on) all of his loans and closed his bank to new loans. This angered many of the bank's clients, causing them to pressure Biddle to re-adopt its previous loan policy. The Second Bank of the United States was left with little money and, in 1836, its charter expired and it turned into a normal bank in Philadelphia. Five years later, the former Second Bank of the United States went bankrupt.
Many approved of Jackson's actions. Others thought quite differently. Some of Jackson's original supporters were outraged and accused Jackson of having a personal vendetta in the bank's veto. Jackson had used language in his message on the veto of the bank, which appeared to resonate mostly with the "common man" of the country, while attacking the predominantly rich or foreign stockholders of the current bank. For instance, he explained, "It appears that more than a fourth part of the stock is held by foreigners and the residue is held by a few hundred of our own citizens, chiefly of the richest class. For their benefit does this act exclude the whole American people ... It is but justice and good policy, as far as the nature of this case will admit, to confine our favors to our own fellow-citizens." This inspired Nicholas Biddle to discount the message as a "manifesto of anarchy", yet Daniel Webster of Massachusetts suggested that such language was a political tool, and the entire message a campaign document, for Jackson's approaching re-election in 1832. Such anti-Jacksonians converted their outrage into political action and, in 1834, formed the Whig party.
It would not be until the formation of the Federal Reserve System that the United States would have a stable national monetary system.
References
Secondary sources
- Bodenhorn, Howard. A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building (2000). Stresses how all banks promoted faster growth in all regions.
- Daniel Feller, "The bank war," in Julian E. Zelizer, ed. The American Congress (2004), pp 93-111.
- Hammond, Bray. Banks and Politics in America from the Revolution to the Civil War (1960). Pulitzer prize winner; the standard history. Pro-Bank
- Remini Robert V. Andrew Jackson and the Bank War: A Study in the Growth of Presidential Power (1967). Pro-Jackson.
- Schlesinger, Arthur Meier Jr. Age of Jackson (1946). Pulitzer prize winning intellectual history; strongly pro-Jackson.
- Taylor; George Rogers, ed. Jackson Versus Biddle: The Struggle over the Second Bank of the United States (1949). Primary and secondary sources.
- Temin, Peter. The Jacksonian Economy (1969)
- Wilburn, Jean Alexander. Biddle's Bank: The Crucial Years (1967). Narrative history, pro-Bank.
- Wilentz Sean. The Rise of American Democracy: Jefferson to Lincoln (2005). Pro-Jackson.
Primary sources
- McGrane, Reginald C. Ed. The Correspondence of Nicholas Biddle (1919)
- Hofstadter, Richard. Great Issues in American History: From the Revolution to the Civil War, 1765-1865 (1958).
External links
- [The Second Bank of the United States] - a history of the Bank by Ralph C. H. Catterall of the University of Chicago, 1902 - on Google Books
- [Andrew Jackson on the Web : Bank of the United States]
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