The Bank of the United States 1820 to 1836

The period spanning from 1820 to 1836 marks a critical chapter in American financial and political history, largely dominated by the trajectory of the Second Bank of the United States and the determined efforts of President Andrew Jackson to dismantle it. This era vividly illustrates the burgeoning nation’s complex relationship with economic power, the struggle against perceived corruption, and the evolving role of government in monetary affairs.

The Bank of the United States: 1820-1823 (Under Langden Shivus)

As the year 1820 dawned, the Second Bank of the United States, America’s third central bank, had been in operation since 1816, established to bring order to the “chaotic monetary state” left in the wake of the War of 1812. This institution was modeled closely after the First Bank of the United States, a private corporation with one-fifth of its shares owned by the federal government. Its mandate was to support state banks and create a national paper currency.

However, the Bank’s initial years were tumultuous, marked by a “spectacular inflation of money and credit” from its inception through July 1818, adding a net of $19.2 million to the nation’s money supply and driving its “pyramid ratio” to an alarming 9.24. This rapid expansion, accompanied by “massive fraud,” precipitated the United States’ “first widespread economic and financial depression,” known as the Panic of 1819.

It was out of this bitter experience that the “Jacksonian movement” dedicated to hard money principles began to emerge. By January 1820, under the more conservative leadership of Langden Shivus, the Bank of the United States adopted a more cautious approach. During his tenure until January 1823, the Bank’s notes and deposits increased at a modest annual rate of 5.9%. Critically, the sources indicate that during this particular period, the nation’s total money supply remained relatively stable. This demonstrated a period of comparative restraint following the earlier, more reckless expansion.

A Shift Towards Inflation: After January 1823 – Prior to 1832 (Under Nicholas Biddle)

The relative stability achieved under Shivus gave way to a dramatically different policy once Nicholas Biddle assumed control of the Bank. Biddle’s regime was “far more inflationist”. From January 1823, the Bank of the United States’ notes and deposits soared from $12 million to $42.1 million, representing a substantial annual increase of 27.9%. This aggressive monetary expansion by the central bank had a profound effect on the national economy: the total money supply during this period vaulted from $81 million to $155 million, an annual increase of 10.2%.

It is important to understand that the Bank of the United States, particularly under Biddle, acted as an “inflationary rather than a restraining force upon the state banks”. This period saw both the Bank’s and the country’s overall reserve ratios (money liabilities to specie) decline, indicating a greater leveraging of reserves to expand credit. While wholesale prices did not always rise directly in proportion to this monetary expansion, such bank credit inflation inevitably “sets up conditions for boom and bust,” creating an inherent instability in the economy.

The Bank War Intensifies: 1832 (Jackson’s Re-election)

The policies of the Second Bank, and particularly its perceived power and influence, became a central battleground in American politics. The election of 1824 had already seen Jackson denounce a “corrupt bargain” when, despite winning a plurality of the popular and electoral votes, the House of Representatives elected John Quincy Adams, who then appointed Henry Clay as Secretary of State. This event solidified Jackson’s “anticorruption rhetoric” and formed the bedrock of his political campaigns.

By 1832, President Andrew Jackson was “triumphantly re-elected on the bank issue”. The presidential campaign of 1832 was “almost exclusively about Jackson’s bank veto,” transforming into a powerful narrative where his supporters framed the conflict as a “struggle between democracy and corruption”. Jackson’s core opposition to the Bank stemmed from his belief that it represented “special privileges” and “systematic corruption,” where a small, aristocratic group manipulated government power for its own economic gain. He vehemently asserted that “no hands are less worthy to be trusted with [power over persons and property] than those of a moneyed corporation”.

Jackson’s rhetoric was potent and direct. He painted the Bank as a “hydra-headed monster eating the flesh of the common man”. His campaign slogan, effectively, was “Bank and no Jackson, or no bank and Jackson!”. He wielded a “secret weapon” in American politics: a direct appeal to the electorate, bypassing traditional political channels. He also ardently advocated for a monetary system based on gold, which he famously called “the coin of honest men,” contrasting it with “rag money” (paper currency), which he viewed as an instrument for banks and “swindlers to corrupt and cheat an innocent and virtuous public”. This stark “Bank War” became the “first defining question” for the newly emerging Whig and Democratic parties.

Jackson’s Direct Assault: 1833 (Removal of Deposits)

Following his decisive re-election, President Jackson wasted no time in his efforts to “disestablish the Bank of the United States as a central bank”. The critical action came in 1833 when Jackson ordered his Secretary of the Treasury, William Duane, to cease placing new federal deposits into the Bank of the United States. Instead, these funds were to be deposited into various state banks, initially referred to as “pet banks,” and current government expenses were to be paid out of the funds still held by the Bank of the United States until that account was “drained to zero”.

Duane, however, “balked at the order out of a sincere conviction that, to do so, would be disruptive to the economy”. Jackson’s response was swift and uncompromising: Duane was removed from office. Jackson, feeling he had the “monster firmly within his grasp,” confidently declared, “I am ready with the screws to draw every tooth and then the stumps”.

Nicholas Biddle, in turn, responded like a “wounded lion” rather than a “meek” lamb. His strategy was a deliberate and severe contraction of the nation’s money supply, aiming to “create another panic-depression similar to the one the Bank had created thirteen years earlier”. His explicit goal was to “blame [this] on Jackson’s withdrawal of federal deposits, and the resulting backlash surely would cause Congress to override the President’s veto”. Biddle chillingly declared, “Nothing but widespread suffering will produce any effect on Congress”, and was willing to use “the American people as sacrificial pawns” in his struggle for the Bank’s survival.

The economic consequences were immediate and severe: “Losses were sustained everywhere, wages and prices sagged, men were put out of work, companies went bankrupt”. The pressure on Jackson was immense, culminating in the Senate’s historic censure of the President on March 28, 1834—the “first time that a President had ever been censured by Congress”. However, Biddle’s “boasting in public about his plan to deliberately disrupt the economy” ultimately backfired. A pivotal moment arrived when Governor George Wolf of Pennsylvania, the Bank’s home state, publicly and strongly denounced the Bank and Biddle, swiftly turning public and congressional sentiment against the institution. In response, the House of Representatives passed resolutions stating that the Bank “ought not to be rechartered,” that deposits “ought not to be restored,” and calling for an investigation into the Bank’s role in instigating the economic crisis.

The Bank’s Demise and Jacksonian Legacy: 1835-1836

By the end of 1836, the number of state banks serving as “pet banks” for federal deposits had increased significantly to 91. This expansion aligned with Jackson’s broader vision, as the “Jacksonians” were “libertarians” who favored “free enterprise and free markets” but opposed “special subsidies and monopoly privileges conveyed by government to business”. Their objective was not to replace one monopoly with another, but to move towards a system free from central banking and eventually, fractional reserve banking.

In 1836, Nicholas Biddle, despite the severe political setbacks, managed to secure a Pennsylvania charter for his institution, which was then restructured as the “United States Bank of Pennsylvania”. This marked a significant reduction in its influence, transforming it into a “much reduced but still influential state bank”. However, its fate was sealed. Following a “spree of speculation in cotton, lavish advances to the Bank’s officers, and the suspension of payment in specie,” Biddle was arrested and charged with fraud, and within five years, the institution was forced to close its doors forever. This effectively marked “America’s third experience with central banking” coming to a close.

President Jackson’s relentless campaign against the Bank was ultimately victorious. The sources confirm that “the hydra-headed monster had been slain and, true to the President’s campaign promise, the nation had Jackson and no Bank”. Furthermore, Jackson successfully paid off the national debt incurred during the War of 1812 and even distributed a surplus of over $35 million to the states, which was used for public works projects.

This period fundamentally shaped the American financial landscape, leading to a decentralized banking system where the “battle for hard money largely shifted to the state governmental arena”. The Jacksonian era, characterized by a belief that “elites had accrued unwarranted privileges that had to be removed,” left an indelible mark on the conceptualization of economic and political power in the young republic. While Jackson’s administration succeeded in resolving some “paradoxes of American democracy,” such as accepting elected “demagogues” and formalizing political parties, the persistent challenges of “corruption and the promotion of economic development” remained a complex, unresolved tension at the national level.