Bank War

The Resurrection of a National Banking System

Though supported by President James Madison and his Treasury Secretary Albert Gallatin, opponents of the First Bank of the United States defeated recharter by a single vote in both the House and Senate in 1811. Opposition came from several fronts, including states’ rights advocates opposed to the doctrine of implied powers, private banking interests who objected to the regulatory effects of the BUS, and big mercantilists, including John Jacob Astor, who had disputes with the Bank’s directors.

The practical arguments in favor of reviving a national system of finance, as well as internal improvements and protective tariffs, were prompted by national security concerns during the War of 1812 and its aftermath which had "demonstrated the absolute necessity of a national banking system"

The roots for the resurrection of the Bank of the United States lay fundamentally in the transformation of America from a simple agrarian economy to one that was becoming interdependent with finance and industry. Vast western lands were opening for white settlement, accompanied by rapid development, enhanced by steam power and financial credit. Economic planning at the federal level was deemed necessary by Republican nationalists to promote expansion and encourage private enterprise.

In 1815, Secretary of State James Monroe informed President James Madison that a national bank "would attach the commercial part of the community in a much greater degree to the Government [and] interest them in its operations…This is the great desideratum [essential objective] of our system." Support for this "national system of money and finance" grew with the post-war economy and land boom, uniting the interests of eastern financiers with southern and western Republican nationalists who sought to "Republicanize Hamiltonian bank policy." and "employ Hamiltonian means to Jeffersonian ends."

"Jackson and Reform": Implications for the BUS

Andrew Jackson’s victory in the 1828 presidential race was achieved through harnessing the widespread social resentments and political unrest persisting since the economic crisis of 1819 and the Missouri Crisis of 1820. Jackson’s forces were immensely strengthened by the revival of the Old Republican North-South agrarian alliance and its state sovereignty precepts.

Under the banner of "Jackson and Reform" the Democratic Party launched a spirited and sophisticated campaign against incumbent president John Quincy Adams, personifying him as a purveyor of corruption and fraudulent republicanism, and a menace to American democracy. At the heart of the campaign was the conviction that Andrew Jackson had been denied the presidency in 1824 only through a "corrupt bargain" devised by Adams and Clay; a Jackson victory promised to rectify this betrayal of the popular will.

Jackson was both the champion and beneficiary of the revival of the Jeffersonian North-South alliance, reasserting the Old Republican precepts of limited government, strict construction, state sovereignty and Southern preeminence. Upon these principles, the Missouri Compromise would be honored, and the issue of slavery suppressed in the interests of preserving the Union. Federal institutions that conferred privileges producing "artificial inequality" would be eliminated through a return to strict constructionism. The "planter of the South and the plain Republican of the north" would provide the support, wielding universal white male suffrage. These precepts would necessarily bring the Jacksonian Democracy politically into collision with the Second Bank of the United States.

So as to conceal the incompatibility of their hard-money and paper-money factions, Jackson’s associates never offered a platform on banking and finance reform, because to do so "might upset Jackson's delicately balanced coalition." As such, the Second Bank of the United States "was not an issue in the 1828 elections." Jackson would not publicly air his grievances with the BUS until December 1829.

Prelude to "War"

When Jackson entered the White House in March 1829, dismantling the Bank was not part of his reform agenda. His new administration made routine efforts to enlist the Bank as a pro-Democratic Party institution, as part of their spoils victory, but Biddle was uncooperative. Jackson’s principled opposition to the BUS and his doubts as to its constitutionality, left open the door to thwart its renewal if he won a second term.

The Second Bank of the United States had attained a solid reputation by 1829. Popular distrust of the Bank had subsided, Supreme Court decisions had approved its legitimacy and the country was experiencing general prosperity: "Jacksonians had to recognize that the Bank’s standing in public esteem was high." Throughout 1829, Jackson and his close advisor William Lewis, maintained cordial relations with BUS administrators, including Biddle. Jackson continued to do business with the BUS branch bank in Nashville, Tennessee.

By October, Jackson’s closest associates, especially his Secretary of State Martin Van Buren of New York state, were developing plans to summarily end the BUS, without proposing any substitutes for the Bank’s fiscal functions. Implicit in these efforts was the strengthening of the New York – Virginia alliance along Old Republican lines.

Nicholas Biddle carefully explored his options in winning over the president to supporting recharter. He approached William Lewis in November 1829 with a proposal to facilitate paying down the national debt. Jackson welcomed the offer and personally promised Biddle he would recommend the plan to Congress in his upcoming annual address, adding emphatically that he still held personal doubts as to the Bank’s constitutionality.

Annual Address to Congress, December 1829

In his annual address to Congress on December 8, 1829, Jackson praised Biddle's debt retirement plan, but followed this with a "bombshell". The president advised Congress to take early action to determine whether the Bank deserved recharter on constitutional grounds, and further declared that the institution had "failed in the great end of establishing a uniform and sound currency."

The claim regarding the Bank’s failure was factually untrue but politically potent in that it served to "discharge the aggressions of citizens who felt injured by economic privilege, whether derived from banks or not." Jackson’s criticisms resonated with "anti-bank, hard money agrarians" as well as to eastern monied interests, especially in New York City, who resented the central bank’s power, prestige and its regulatory controls on easy credit.

Both Houses of Congress categorically rejected Jackson’s assertions and upheld the Bank in committee reports issued in March and April 1830. Both confirmed that the US Constitution not only permitted but required such a financial institution, echoing the arguments of John C. Calhoun during the charter debates in 1816.

In the aftermath, no clear policy towards the Bank emerged from the White House. Jackson’s official cabinet members were opposed to an overt attack on the Bank. The Treasury Department maintained normal working relations with Biddle, who was renominated to his Bank director's post by the president. Lewis and other of Jackson’s confidants continued to have encouraging exchanges with Biddle, but in his private correspondence to his associates, Jackson repeatedly referred to the institution as "a hydra of corruption", "dangerous to our liberties" and its "demoralizing effects upon our citizenry."

Annual Address to Congress, December 1830

While pro-administration newspapers hardened their stance towards the Bank throughout 1830, official White House policy remained conflicted and perplexing. Jackson, however, had determined to oppose the rechartering of the Bank on constitutional grounds. At his Annual Address to Congress on December 7, 1830, he launched his second public condemnation of the BUS, expanding his criticisms and proposing a substitute to the central bank. The reformed bank would be wholly public, with no private stockholders, nor would it engage in lending or land purchasing, and retaining only its role in processing custom duty fees for the US Treasury. The address reanimated the issue of recharter signaling the pro-BUS forces that the re-authorization of the Bank was at risk, and a counter-campaign would be required to deflect Jackson’s criticisms.

In February, 1831, while National Republicans were formulating a recharter strategy, US Senator Thomas Hart Benton of Missouri, launched an attack against the legitimacy of the Bank on the floor of the Senate, demanding an open debate on the recharter issue. Though Benton's assault was deflected by pro-Bank legislators, the Bank’s performance was now a matter of public – and politicized – scrutiny.

The Post-Eaton Cabinet and Compromise Efforts

Two developments in 1831 diverted Jacksonian Democrats temporarily from pursuing the Bank’s dismantling: the Nullification Crisis and the Peggy Eaton Affair. These struggles led to the resignation of Vice-President Calhoun and to a new official cabinet – a cabinet that Jackson regarded strictly as an advisory body. Jackson’s Kitchen Cabinet, led by Amos Kendall and Francis Blair, crafted policy. Jackson included two Bank-friendly executives into his official cabinet: Edward Livingston of Louisiana (Secretary of State) and Louis McLane of Delaware (Secretary of the Treasury). Their presence created the appearance of balance and open-mindedness - the rest of the official cabinet members were anti-Bank. - leading to an attempt at compromise.

McLane, a confidant of Nicholas Biddle, impressed Jackson as a forthright and principled moderate on Bank policy. The Treasury Secretary's goal was to see to it that the BUS survived Jackson’s presidency, even in a diminished condition. To this end, he proposed a reform package to Jackson in which the federal government would sell off its stock in the Bank, offer up public lands for state purchase, adjust the tariff, and ultimately pay down the national debt before the end of Jackson’s second term in March 1837. With this accomplished, the administration would permit re-authorization of the central bank in 1836. The perpetuation of the Bank would be secured.

These reforms required a rapprochement between Jackson and Biddle on the matter of recharter, with McLane and Livingston acting as liaisons. The president insisted that no bill arise in Congress for recharter in the lead up to his reelection campaign in 1832. He viewed the issue as a political liability – recharter would easily pass both Houses with simple majorities - and as such, would confront him with the dilemma of "approving or disapproving" the legislation. A delay would obviate these risks. Jackson, however, remained convinced of the Bank's unconstitutionality.

McLane formulated a tentative understanding that included a deferment of the issue, while indicating a willingness to support renewal. Near the end of 1831, a compromise was reached in which Jackson would accommodate recharter as long as modifications were made that produced a "National" institution, and pledging Biddle to refrain from petitioning Congress for renewal until after the general election of 1832.

Annual Address to Congress, December 1831

In a key caveat, the Secretary of the Treasury convinced the chief executive to avoid commenting on recharter in the upcoming Annual Address to Congress in December. McLane feared that remarks by the president could trigger an immediate recharter drive, and undermine his carefully crafted reform plan. To this, Jackson conceded. McLane would then present his proposals for reform and delay of recharter at the Annual Treasury Secretaries report to Congress shortly thereafter.

In the original composite draft of the president’s address, Jackson explicitly deferred to Congress on the matter of the national bank – McLane had written the passage under Jackson’s auspices. Roger B. Taney, Attorney General, another of the cabinet's new appointees, objected strenuously to the wording, interpreting it as an acknowledgement of - and capitulation to - Congressional authority, and entirely contrary to anti-Bank doctrine.

Despite McLane's attempts to gain re charter of the Bank by a series of reforms, Taney was confident that ultimately Jackson would never relinquish his desire to destroy the central bank. Jackson subsequently edited the language in the final draft after considering Taney’s objections – without consulting McLane. In his December 6 address, Jackson was non-confrontational, but his message was less unequivocal in its support for recharter and amounted to merely a reprieve on the Bank’s fate.

The following day, Secretary McLane delivered his report to Congress, in which he praised the Bank’s performance, including its regulatory functions regarding private banks and explicitly called for a post-1832 rechartering of a reconfigured government bank.

The enemies of the Bank were shocked and outraged by both speeches. The Jacksonian press, disappointed by the president’s subdued and conciliatory tone towards the Bank launched fresh and provocative assaults on the institution. McLane’s speech, despite its call for radical modifications and delay in recharter was widely condemned as "Hamiltonian" in character and an assault on democratic principles. The Washington D.C. Globe, Jackson’s pro-administration weekly under Francis Blair, refrained from openly attacking Secretary McLane, but in lieu of this, carried hostile essays from anti-Bank periodicals.

The National Republican Party Offensive

The Jacksonian anti-Bank backlash instantly provoked a political movement in their opposition, the National Republicans. Within days of the speech, the party (which later became part of the Whig Party) gathered in convention and on December 16, 1831 and nominated Senator Henry Clay for US president - one of Jackson opponents in the 1824 general election. Their campaign strategy was to defeat Jackson in 1832 on the Bank re-authorization issue. To that end, Clay engineered the introduction of recharter bills in both the House and Senate. Clay rejected any modifications to the bills that would make them more palatable to Jackson, seeking to provoke a veto; a veto Clay hoped would damage Jackson and lead to his defeat.

Henry Clay and Senator Daniel Webster of Massachusetts warned Americans that if Jackson won reelection, he would abolish the Bank. They felt secure that the central bank was sufficiently popular among voters that an attack on the Bank by Jackson would be viewed as an abuse of his executive power. The National Republican leadership aligned themselves with the Bank because it offered what appeared to be a perfect platform to defeat Jackson – and less so because they were champions of the BUS.

Administration figures, among them Biddle and McLane, were extremely wary of making ultimatums that would provoke anti-Bank Jacksonians Nicholas Biddle no longer believed that Jackson would pursue reform and compromise on the Bank, but his informants close to the administration convinced him that Jackson would not veto re-authorization measures. Under pressure from Clay and Webster, Biddle reluctantly decided to risk actively supporting the early recharter campaign. On January 9, 1832, bills for Bank recharter were introduced in both Houses of Congress.

The Jacksonian Counter-Offensive

The alliance between the central bank’s president, Nicholas Biddle, and Jackson’s political nemesis, Henry Clay, triggered a counter-offensive by Jackson’s anti-BUS forces. Jackson assembled an array of talented and capable men: Thomas Hart Benton in the Senate, James K. Polk, member of the House of Representatives from Tennessee, Francis Preston Blair of the Washington Globe, and Amos Kendall and Attorney General Roger B. Taney in his cabinets. As the debates opened, the House Jacksonians called for investigations of the BUS on charges of misconduct and alleged violations of its charter, as an effort to put pro-Bank forces on the defensive.

These Jacksonian delaying tactics could not safely be blocked by legislators – many of them had benefited from the largesse supplied by BUS administrators. Attempts to obstruct the inquiry would raise suspicions among the public. A special House Committee was selected by pro-Jackson speaker James Polk; it produced a report that included innuendo and unproven allegations that served to bolster Jackson’s criticisms of the Bank.

The months of delay in reaching a vote on the recharter measure – a measure that would have passed easily had not anti-Bank forces mobilized - served ultimately to clarify and intensify the issue for the American people. Jackson’s supporters benefited in sustaining these attacks on the Bank even as Benton and Polk warned Jackson that the struggle was "a losing fight" and that the recharter bill would certainly pass.

Biddle arrived in Washington DC to personally conduct the defense of the Bank. He coordinated pro-BUS campaigns, in concert with branch Bank managers, to elicit citizen group petitions drives, sent to Congress to encourage recharter. Congressmen were pressured to write pro-Bank articles, which Biddle printed and distributed nationally. Francis Blair at the Globe reported these intrusions by the BUS president in the legislative process as evidence of the Bank’s corrupting influence on free government. Pro-recharter National Republicans finally prevailed after months of debate and strife, winning reauthorization in the Senate on June 11, 1832 (28-20) and in the House on July 3, 1832 (107-85).

The Bank, Mr. Van Buren, is trying to kill me, but I shall kill it.

Veto

Jackson vetoed the legislation on July 10, 1832, delivering a carefully crafted message to Congress - and the American people. One of the most "popular and effective documents in American political history", Jackson outlined a major readjustment to the relative powers of the government branches.

The executive branch, Jackson averred, when acting in the interests of the American people; was not bound to defer to the decisions of the Supreme Court, nor to comply with legislation passed by Congress. Further, executive power was no longer limited to suppressing clear violations of the Constitution – it could be asserted on social, political or economic grounds. Jackson characterized the BUS as merely an agent of the executive branch, acting through the Department of the Treasury. As such, declared Jackson, Congress was obligated to consult the chief executive before initiating legislation affecting the Bank. Jackson had claimed, in essence, legislative power as president. Ignoring the Second Bank of the United States’ value in stabilizing the country’s finances, Jackson's message provided no concrete proposals for an alternate institution that would regulate currency and prevent over-speculation – the primary purposes of the BUS.

Polemically, the veto message was "a brilliant political manifesto" that called for the end of monied power in the financial sector and a leveling of opportunity under the protection of the executive branch. Jackson perfected his anti-Bank themes, pitting the idealized "plain republican" and the "real people" – virtuous, industrious and free - against a powerful financial institution – the "monster" Bank whose wealth was purportedly derived from privileges bestowed by corrupt political and business elites. To those who believed that power and wealth should be linked, the message was unsettling. Daniel Webster charged Jackson with promoting class warfare.

In presenting his economic program Jackson was compelled to obscure the fundamental incompatibility of the hard-money and easy credit wings of his party. On one side were Old Republican idealists who took a principled stand against all paper credit in favor of metallic money. Yet the bulk of Jackson’s supporters came from easy lending regions that welcomed banks and finance, as long as local control prevailed. By diverting both groups in a campaign against the central bank in Philadelphia Jackson cloaked his own hard-money predilections, which, if adopted, would be as fatal to the inflation favoring Jacksonians as the BUS was purported to be.

Too late, Clay "realized the impasse into which he had maneuvered himself, and made every effort to override the veto." The pro-Bank interests failed to muster a supermajority - achieving only a simple majority of 22-19 in the Senate and on July 13, 1832, the veto was sustained.

Post-veto presidential race of 1832

With just four months remaining until the November general election, both parties launched massive political offensives with the Bank at the center of the fight. Jacksonians skillfully reduced the issue to a choice between Jackson and "the People" versus Biddle and "the Aristocracy", while muting their criticisms of banking and credit in general. "Hickory Clubs" organized mass rallies, while the pro-Jackson press "virtually wrapped the country in anti-Bank propaganda". This, despite the fact that two-thirds of the major newspapers supported Bank recharter. The National Republican press countered by characterizing the veto message as despotic and Jackson as a tyrant. Presidential hopeful Henry Clay vowed "to veto Jackson" at the polls. Overall, the pro-Bank analysis tended to soberly enumerate Jackson's failures, lacking the vigor of the Democratic Party press. Biddle mounted an expensive drive to influence the election, providing Jackson with copious evidence to characterize Biddle as an enemy of republican government and American liberty.

Jackson soundly outpolled Clay and National Republicans in both the electoral count and popular vote, easily winning reelection.

Jackson's dismantling of the BUS

Jackson regarded his victory as a popular mandate to eliminate the BUS before its 20-year term ended in 1836. 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. 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. The president declared the Bank "Scotched, not dead".

Annual Address to Congress, December 1832

Jackson aired his doubts to Congress whether the BUS was a safe depository for "the people's money" and called for an investigation. In response, the Democratic-controlled House conducted an inquiry, submitting a divided committee report (4-3) that declared the deposits perfectly safe. The committee’s minority faction, under Jacksonian James K. Polk, issued a scathing dissent, but the House approved the majority findings in March 1833, 109-46. Jackson, incensed at this "cool" dismissal, decided to proceed with his Kitchen Cabinet to remove the BUS funds by executive action alone.

Search for a Treasury Secretary

As Kendall and Taney began to seek cooperative private banks who would receive the government deposits, Jackson sought to prepare his official cabinet for the coming removal of the Bank's capital. 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. 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. Jackson subsequently shifted both pro-Bank cabinet members to other posts: McLane to Department of State, and Livingston to Europe, as US Minister to France. The president replaced McLane with William J. Duane, a reliable opponent of the Bank from Pennsylvania, on June 1, 1833, when Jackson and his Kitchen Cabinet were well-advanced in their scheme to remove the deposits.

Under the Bank charter terms of 1816, the US Secretary of the Treasury was empowered, with Congress, to make all decisions regarding the federal deposits. On his first day at his post, Secretary Duane was informed by a Jackson associate that Duane would be expected to defer to the US President on the matter of the deposits. Duane demurred, and when Jackson personally intervened to explain his political mandate to ensure the Bank’s demise his Treasury Secretary informed him that Congress should be consulted to determine the Bank's fate. After weeks of clashing with Duane over these prerogatives, Jackson – wishing to act before Congress reconvened in December – publicly announced his intention to summarily remove the deposits. Secretary Duane, refusing to resign, and under attack by Blair's Globe was dismissed by Jackson days later, on September 22, 1833

Attorney General Taney was immediately designated Secretary of the Treasury in order to authorize the transfers, and on October 1, 1833, the United States officially switched "from National banking to deposit banking".

"War" revived

Pro-Bank forces reacted even more strongly to the executive action than they had to Jackson's vetoing of the recharter bill. The president discerned that Congress might find the votes to reverse his orders with a two-thirds majority.

In the process of distributing federal funds to the private "pet banks", Secretary Taney attempted to move tactfully, so as not to provoke retaliation by the BUS, nor eviscerate the central bank's regulatory influence too suddenly. Ineptly, Taney permitted the pet banks to draw prematurely on BUS reserves for speculative ventures, and Biddle reacted with a punitive credit contraction. Despite initiating a widespread financial crisis – threatening to reach 1819 levels – the BUS pursued this tight credit policy to coerce Congress to resume the fight for the central bank’s rechartering. Objections arose within the Democratic Party as to the wisdom and legality of Jackson's move to terminate the Bank through executive means before its 1836 expiration.

Annual Address to Congress December 1833

The Bank War continued to rage when Congress reconvened on December 3, 1833, with removal of the federal deposits already an accomplished fact. President Jackson in his address and Secretary Taney in his report, both exhorted Congress to uphold the removals, pointing to Biddle's economic warfare as evidence that the central bank was unfit for public funds.

The Houses divided over Jackson's Bank policies. The House of Representative, now under pro-Jackson Democratic control, passed resolutions in favor of the removal, explicitly stating that the Bank "ought not to be rechartered".

The Senate's response, dominated by Whigs, was an assault on Andrew Jackson as an executive, rather than on Bank recharter or the federal deposits. Henry Clay, spearheading the attack, described Jackson as a "backwoods Caesar" and his administration a "military dictatorship".

Jackson was officially censured for violating the US Constitution. The opposing parties accused one another of lacking credentials to represent the people: Jacksonian Democrats pointing to the fact that Senators were beholden to the state legislatures that selected them; the Whigs pointing out that the chief executive had been chosen by electors, and not by popular vote.

Demise of the Bank of the United States

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. Biddle finally resumed his pre-contraction policies and by the close of 1834, all recharter efforts were abandoned as a "lost cause". In February 1836, the Bank became a private corporation under Pennsylvania commonwealth law. In 1839, it suspended payment and was liquidated in 1841.