The election of Andrew Jackson to the presidency in 1828 marked a watershed moment in American political history, bringing the simmering tensions between populist democracy and concentrated financial power to a full boil. Jackson rode to power on a wave of populist enthusiasm, actively mobilizing voters with a campaign that championed the “common man” against an aristocratic, wealthy elite. For Jackson and his supporters, the ultimate symbol of this corrupt elite was the Second Bank of the United States. Jackson viewed the Bank not merely as a financial institution, but as an engine of “systematic corruption”—a virtual shadow government that used its massive wealth and monopoly privileges to purchase political influence and subvert the democratic process.
Chartered in 1816 to stabilize the nation’s chaotic currency after the War of 1812, the Second Bank of the United States was deeply intertwined with both the federal government and foreign investors. By the time Jackson took office, the Bank was under the direction of Nicholas Biddle, a brilliant, wealthy, and arrogant financier who represented the archetype of the Eastern Establishment. Biddle wielded immense power over the American economy; he freely admitted to a Senate Committee that there were very few state banks that could not be destroyed by an exertion of his Bank’s power. Furthermore, Biddle used the Bank’s vast resources to grant business favors to compliant politicians, effectively keeping much of Congress in his pocket.
The defining clash between the populist President and the aristocratic banker occurred in 1832. Knowing that Jackson was up for reelection, Biddle deliberately asked Congress for an early renewal of the Bank’s charter. Biddle calculated that Jackson would not risk the political fallout of a veto during a campaign year. He severely underestimated his opponent. Jackson accepted the challenge and struck down the bill with perhaps the most passionate veto message ever delivered by an American president. In it, Jackson excoriated the Bank for granting “titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful,” while leaving “the humble members of society—the farmers, mechanics, and laborers” to suffer the injustice of their own government.
Taking a revolutionary step for American politics, Jackson bypassed the political establishment and appealed directly to the electorate. He campaigned furiously on the issue, portraying the Bank as a hydra-headed monster and bellowing to crowds, “Bank and no Jackson, or no bank and Jackson!”. The American people responded by handing Jackson a mammoth landslide victory, granting him 55 percent of the popular vote and 80 percent of the electoral college.
Viewing his reelection as a popular mandate, Jackson moved to deliver the killing blow. In 1833, he ordered the Secretary of the Treasury to withdraw all federal deposits from the Second Bank and place them into regional, private state banks. Nicholas Biddle, enraged, responded by weaponizing the American economy. He initiated a severe, deliberate contraction of the nation’s money supply by curtailing credit and calling in loans, calculating that the resulting economic agony would force Congress to override Jackson’s veto and restore the deposits. Biddle ruthlessly declared, “Nothing but widespread suffering will produce any effect on Congress… All other banks and all the merchants may break, but the Bank of the United States shall not break”.
Biddle’s engineered contraction triggered a severe economic crisis. Businesses went bankrupt, wages and prices plummeted, and workers were thrown into the streets. Initially, the plan seemed to work; Jackson was blamed for the ensuing chaos and, in an unprecedented move, was officially censured by the Senate. However, Biddle’s massive ego proved to be his undoing. He boasted publicly about his deliberate disruption of the economy, and when the American public realized they were being used as sacrificial pawns to save a banking monopoly, sentiment fiercely turned against him. The Senate eventually rescinded its censure of Jackson, Biddle was investigated by Congress, and the Bank’s federal charter was allowed to expire in 1836.
While Jackson succeeded in slaying the “monster” bank, his victory inadvertently unleashed a new kind of economic chaos. With the moderating influence of the central bank removed, the nation’s banking system passed wholly into the hands of state-chartered banks, many of which operated with reckless abandon. These banks wildly expanded the money supply, fueling a massive speculative boom that inevitably led to a catastrophic bust. Sixteen percent of the nation’s money completely disappeared in 1837 alone, wiping out savings, destroying businesses, and plunging the nation into a severe depression. This catastrophic event, following the rapid expansion of credit, firmly established the volatile boom-bust cycle that would repeatedly devastate the American economy throughout the 19th century.