History Brief: Andrew Jackson’s War on the Bank

Although Andrew Jackson operated as a strong
Chief Executive, he did not always defend greater federal power. As his first term neared an end, Jackson made
a decision that would alter the role the federal government played in the economy. What was that decision? The Second Bank of the United States was given
a twenty-year charter by Congress in 1816. This charter granted the bank the power to
act as the government’s financial agent. The bank held the country’s deposits, made
loans, and regulated the currency. The bank also transferred federal funds between
states, issued bank notes, and handled payments and receipts for the US government. Although the bank’s operations were supervised
by the president and Congress, around 80% of the bank was privately owned, and its profits
benefited a large number of wealthy American and foreign stockholders. Many states, especially in the South, strongly
opposed the Second Bank of the United States. In the early years of its existence, it had
been riddled by poor financial management and corruption. A great number of small farmers believed that
the bank existed mainly to benefit the wealthy, ruling elite and that the institution gave
foreign investors too much influence in US policy. Although Jackson realized the important role
the bank played in the US economy, he distrusted the institution and even questioned the constitutionality
of its existence. He believed that the states, not Congress,
should have the power to control America’s banking system. The large number of political opponents who
profited from the bank also caused Jackson great ire. The first notable resistance to the Second
Bank of the United States came in the form of a lawsuit filed by the state of Maryland. The state attempted to pass a tax that would
limit the bank’s operations within Maryland’s borders. The cashier for the federal bank in Maryland,
James McCullough, refused to pay the tax and the case went to the Supreme Court. In the landmark case McCullough v. Maryland,
the Court ruled that the bank was constitutional and that it did not have to pay the tax. Realizing the unpopularity of the bank with
President Jackson, the bank’s director, Nicholas Biddle, attempted to force the renewal
of the Second Bank of the US’s charter through during Jackson’s reelection year in 1832. Biddle felt that Jackson, who had vetoed more
bills than any previous president, would be much less likely to veto the charter if that
action could be used against him during his campaign. Jackson, who believed the bank held too much
power, campaigned aggressively for the bill’s defeat. Of Biddle’s political ploy, Jackson told
his future Vice President Martin Van Buren, “The bank is trying to kill me, but I will
kill it!” Jackson overwhelmingly won reelection and
vetoed the bill when Congress sent it to him. With many members of Congress not wanting
to face a backlash from pro-Jackson voters, they were unable to override the president’s
veto. Jackson, true to his character, determined
to destroy the bank before its charter expired in 1836. Jackson ordered most of the US government’s
funds to be moved out of the bank and into state banks, which his political opponents
dubbed “pet banks.” With the new flow of money into the smaller
banks, a large number of them used the funds to offer loans to people who hoped to purchase
land in the West. The tactic led to massive land grabs on the
American frontier, but it also caused rapid inflation. In the final year of his presidency, Jackson
attempted to slow this inflation. He issued the Specie Circular, an executive
order which required payment for government land to be in gold and silver, rather than
paper state-bank notes. The action did little to help the ailing economy,
but Jackson remained popular. Despite his widespread support, he chose not
to run for reelection in 1836. The Democrats nominated Vice President Martin
Van Buren in hopes of maintaining control of the White House. With Jackson’s backing, Van Buren easily
won the election. Soon after Van Buren took office, a severe
economic depression known as the Panic of 1837 occurred. The depression lasted well into the 1840s,
and the money system collapsed as banks refused to redeem paper money at face value. Nearly half of the banks in the US closed,
unemployment reached 25% in many cities, and large numbers of businesses failed. The economic crisis was the result of many
factors, but Jackson’s banking policies and his attempt to halt the resulting inflation
were partly responsible. The crisis doomed Van Buren to defeat in his
reelection bid. With the election of William Henry Harrison
in 1840, the Age of Jackson officially came to an end.

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