“The Bank is trying to kill me, but I will kill it.”
-Andrew Jackson on the Second Bank of the United States
6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff continues with his series on financial regulation throughout American and Canadian history.
|Andrew Jackson and Nicholas Biddle. Two presidents|
and arch-nemeses in the famous "Bank War"
The Panic of 1819 did the Second Bank of the United States (SBUS) no favors with the American public which largely blamed it for the financial crisis and resulting depression.
To read the Correspondent’s earlier entry on the Panic and Depression of 1819 go to:
Bank President William Jones stepped down in 1819 and after a short tenure by replacement Langdon Cheves the presidency was assumed in 1823 by the brilliant but controversial 36-year old financier and statesman Nicholas Biddle.
Just two months later a mercurial, argumentative Tennessee politician nicknamed “Old Hickory”—the future President Andrew Jackson—began his first full term in the U.S. Senate. The Democratic Jackson, whose ideology was based on Thomas Jefferson’s vision of limited government and agrarian populism, strongly opposed central banks and publicly opposed the SBUS or any suggestion of an extension of its charter.
The two men quickly found themselves on a political collision course, dubbed by historians as the “Bank War,” and best encapsulated by Jackson’s famous quip to his Vice President Martin van Buren:
“The Bank is trying to kill me, but I will kill it.”
-July 4, 1832
THE BANK AND JACKSON’S PRESIDENTIAL ELECTIONS
The details of the Bank War are many and the politics lurid. For a digestible version the Correspondent can recommend Robert Remini’s “Andrew Jackson and the Bank War.” However, here’s the basic picture in a five-minute read:
Andrew Jackson lost his run for the presidency in 1824 to John Quincy Adams in what historians title The Corrupt Bargain of 1824.
Although Jackson won a plurality of both electoral and popular votes in a four-way race, the lack of a majority winner sent the decision to the House of Representatives. From there House Speaker and Jackson nemesis Henry Clay used his influence to garner a majority of votes for Adams who reciprocated by appointing Clay as his Secretary of State.
Jackson believed the Second Bank had interfered in the election, pouring money and political support behind his opposition. Although he never found any evidence to corroborate his suspicions in 1824, the Bank made things easy for him by giving him all the evidence he needed several years later in another presidential election.
Jackson ran again in 1828, this time successfully, loudly criticizing the SBUS on the campaign trail and promising to oppose its recharter.
Bank President Nicholas Biddle, described even by the present-day Minneapolis Federal Reserve as “arrogant, hypersensitive to criticism and unschooled in politics,” was none too pleased at Jackson’s anti-SBUS rhetoric and decided to engage in open political warfare.
Biddle’s first move was to apply for the Bank’s charter renewal four years early, in 1832, signaling to Jackson that he risked opposing the charter at his own reelection year risk.
Historian Stephen Campbell records that Biddle recruited “an impressive array of branch officers, state bankers, lawmakers, intellectuals, vote counters, lawyers, and confidential agents… …to transmit pro-BUS ideas through articles, essays, pamphlets, philosophical treatises, stockholders’ reports, congressional debates, and petitions, all in a standardized campaign message.”
Campbell also notes that Biddle’s reach extended to politicians, sending “confidential agents into the state legislatures in Pennsylvania and New York, in some cases equipped with bribe money, to persuade undecided lawmakers and secure pro-BUS resolutions.”
Biddle is estimated to have spent $100,000 of his own money, loaned another $100,000 to newspaper editors, and another $150,000-$200,000 directly to Congressmen for their support. In 2022 dollars that’s roughly $10-$11 million.
And Congress reciprocated, giving Biddle his coveted renewal by a vote of 28-20 in the Senate and 107-85 in the House.
But Jackson vetoed it and pro-Bank forces did not have the numbers to override his veto (a key passage from Jackson’s veto appears at the end of this article).
Beaten but not deterred, Biddle focused on his next strategy: pouring more money and political influence into newspapers and other media to bolster Jackson’s 1832 presidential campaign opponent, Henry Clay.
Reports of Biddle’s heavy involvement gave Jackson the confirmation that the Bank was indeed interfering in the political process.
Biddle had been warned by colleagues and Washington insiders that attempting to intervene in a presidential election might backfire, and backfire it did. Jackson seized upon reports of the Second Bank’s newspaper payoffs and he subsequently campaigned as a champion of the average citizen, fighting against the corrupt financial elites who were trying to buy their way into power.
JACKSON WEAKENS THE BANK, WAR ENSUES
Jackson won reelection by a landslide, garnering 219 electoral votes to Clay’s 49.
Still angry at Biddle’s attempts to destroy him politically, Jackson moved to reduce the Bank’s power and directed his Treasury Secretary to cease using the SBUS as the federal government’s banker, to withdraw federal funds from the Bank, and to deposit them across nineteen private state banks, dubbed “pet banks” by historians.
Mainstream economic historians criticize Jackson for this move, but ironically the U.S. Treasury has maintained deposit accounts at thousands of private banks since 1979 (known as Treasury Tax and Loan or TT&L accounts).
TT&L accounts make processing tax payments and refunds easier since most taxpayers make payments or receive refunds through their private bank accounts anyway, not through the Treasury’s deposit account at the Federal Reserve—the Treasury General Account (TGA).
The TT&L program was largely suspended during the 2008 financial crisis due to concerns about possible bank failures, but the point is for what establishment historians today call a terrible policy decision, Jackson’s transfer of deposits from the central bank to private “pet banks,” was adopted by the U.S. Treasury in the late 20th century.
Biddle, now unhappy about losing the political battle over rechartering, losing in the 1832 presidential election, and losing the federal government’s deposits, contracted credit and withdrew large quantities of SBUS banknotes from circulation, creating a small financial panic and recession in 1833.
There is renewed debate among historians whether Biddle did this deliberately to discredit Jackson, some of it rekindled in recent years since Donald Trump named Andrew Jackson his favorite president and placed his portrait in the Oval Office—prompting academics to launch a new campaign to tear down Jackson’s reputation.
But there’s no debate in the Economics Correspondent’s opinion: the contraction was a deliberate political attack and prima facie exhibit of the dangers of concentrated power in the hands of a central banker.
Remini records (in 1965, long before the arrival of Trump Derangement Syndrome) that “Biddle considered it his duty to strike back—and the harder the better. If he brought enough pressure and agony to the money market, perhaps he could force the President to restore the deposits.”
And even Biddle-sympathizing historian George Rogers Taylor writes in 1924 that:
“In 1833-34 Biddle used the tremendous power of the Bank against the general good to force a disastrous contraction on the business community in his effort to win his personal war with President Jackson.”
“By this display of power he [Biddle] ruined whatever chances the Bank may have had for recharter… …Biddle had demonstrated what his enemies had charged: the ability of the Bank to affect the whole course of business of the country and his willingness to use that power to the public detriment and his own personal advantage.”
At first the public did blame Jackson for the recession, but by 1834 the economy had recovered nicely—due in part to an international inflow of silver which we will discuss in the next chapter—and public sentiment turned again against the SBUS for causing the 1833 slump.
Without its renewed charter the SBUS lost its special government-granted privileges in 1836 and became just another ordinary, albeit very large, private commercial bank.
But once again Americans of the 19th century proved far more adept at identifying the causes of financial and economic turmoil than their 21st century descendants.
Passage from Jackson's 1832 Bank veto message:
“It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes… In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and special privileges, to make the rich richer and the potent more powerful, the humble members of society—the farmers, mechanics, and laborers—who have neither the time nor the means of securing like favors for themselves, have a right to complain of the injustice of their Government… …In the act before me there seems to be a wide and unnecessary departure from… … just principles.”