Although the nullification crisis possessed the seeds of civil war, it was not as critical a political issue as a bitter struggle over the contin- ued existence of the nation’s central bank, the second Bank of the United States . The first bank, established in 1791 under Alexander Hamilton’s guidance, had been chartered for a 20-year period . Though the gov- ernment held some of its stock, the bank, like the Bank of England and other central banks of the time, was a private corporation with profits passing to its stockholders . Its public functions were to act as a deposito- ry for government receipts, to make short-term loans to the government, and above all to establish a sound currency by refusing to accept at face value notes (paper money) issued by state-chartered banks in excess of their ability to redeem .

To the Northeastern financial and commercial establishment, the central bank was a needed enforc- er of prudent monetary policy, but from the beginning it was resent- ed by Southerners and Westerners who believed their prosperity and regional development depended upon ample money and credit . The Republican Party of Jefferson and Madison doubted its constitutional- ity . When its charter expired in 1811, it was not renewed .

For the next few years, the bank- ing business was in the hands of state-chartered banks, which issued currency in excessive amounts, cre-




ating great confusion and fueling in- flation . It became increasingly clear that state banks could not provide the country with a reliable currency . In 1816 a second Bank of the United States, similar to the first, was again chartered for 20 years . From its inception, the second bank was unpopular in the newer states and territories, especially with state and local bankers who resented its vir- tual monopoly over the country’s credit and currency, but also with less prosperous people everywhere, who believed that it represented the interests of the wealthy few .

On the whole, the bank was well managed and rendered a valu- able service; but Jackson had long shared the Republican distrust of the financial establishment . Elected as a tribune of the people, he sensed that the bank’s aristocratic man- ager, Nicholas Biddle, was an easy target . When the bank’s support- ers in Congress pushed through an early renewal of its charter, Jackson responded with a stinging veto that denounced monopoly and special privilege . The effort to override the veto failed .

In the presidential campaign that followed, the bank question re- vealed a fundamental division . Es- tablished merchant, manufacturing, and financial interests favored sound money . Regional bankers and entre- preneurs on the make wanted an increased money supply and lower interest rates . Other debtor classes, especially farmers, shared those sen- timents . Jackson and his supporters

called the central bank a “monster” and coasted to an easy election vic- tory over Henry Clay .

The president interpreted his tri- umph as a popular mandate to crush the central bank irrevocably . In Sep- tember 1833 he ordered an end to deposits of government money in the bank, and gradual withdrawals of the money already in its custody . The government deposited its funds in selected state banks, characterized as “pet banks” by the opposition .

For the next generation the Unit- ed States would get by on a relatively unregulated state banking system, which helped fuel westward expan- sion through cheap credit but kept the nation vulnerable to periodic panics . During the Civil War, the United States initiated a system of national charters for local and re- gional banks, but the nation re- turned to a central bank only with the establishment of the Federal Re- serve system in 1913 .

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