By Allen Guelzo, Princeton University
Andrew Jackson’s veto had only killed the recharter petition for the Second Bank of the United States. The bank still had four more years of operation guaranteed to it by the original 1816 charter, and under normal circumstances, there would have been little that Jackson could have done about it.
Weakening of the Bank
The bank war over the recharter had decisively altered the circumstances, though, and Jackson was now willing to go on the offensive against the “monster bank”. Jackson’s principal objective was the $10 million in government deposits in the Second Bank of the United States.
Withdraw those, Jackson reasoned, and the bank, already politically weakened by the loss of the recharter, would be economically weakened as well and unable to wield the influence over Washington City, which had protected it up to this point. After that, even if the bank tried to mount another re-charter effort, it would lack the strength to win a veto proof majority in Congress.
Jackson, however, satisfied himself that the government deposits could be just as well distributed to various friendly state banks, with the same banks now permitted to receive further deposits and handle government financial business.
The bank’s charter, after all, had made the Second Bank the government deposit bank, unless the secretary of the treasury authorized deposits to another institution and even then, the secretary had to get approval for that from Congress.
Opposition to Jackson’s Removal of Deposits
Even if Jackson had put hesitation on this issue behind him, others in his cabinet and in Congress had not. To Jackson’s angered surprise, Lewis McLane, the secretary of the treasury, simply refused Jackson’s order to remove the deposits of the government from the Second Bank.
Jackson promptly relieved him and made him secretary of state. In his place, Jackson appointed the presumably more pliant William Duane, a Philadelphia lawyer. However, Duane, too, refused to remove the deposits. On September 23, 1833, Jackson dismissed him, too.
Finally, Jackson turned to his longtime ally in the bank war, Attorney General Roger Taney, and made Taney secretary of the treasury. This time, it worked.
On October 1, Taney cheerfully ordered all future government deposits to be made in seven state banks, while all future withdrawals for payment would be made from the Bank of the United States until the federal funds in the Second Bank were completely exhausted. Thoroughly satisfied, Jackson predicted that he would have Nicholas Biddle and his bank as quiet and harmless as a lamb in six weeks.
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Biddle Versus Jackson
Congress was no happier with Jackson’s withdrawal policy than his first two secretaries of the treasury had been. In addition, Henry Clay now returned, this time to the Senate as Kentucky’s junior senator, to lead the battle for a censure resolution against Jackson.
Announcing that the withdrawal of the government deposits was threatening the stability of the Bank of the United States, Biddle now began recalling loans he had made and shortening credit by five and a half million dollars. As Bank of the United States creditors came up short, Biddle seized businesses and property, while other borrowers found Biddle unwilling or unable to extend further credit for business operations. Because of this, businesses failed, workers were thrown out of work, and the money supply dried up.
Biddle Backs Down
Determined to make the country hurt and to blame Jackson as the cause, Biddle hoped to choke submission out of Jackson and the nation. He failed, largely because Jackson successfully turned the blame back on Biddle just as his recharter veto rebounded back onto the bank. “Go to Nicholas Biddle,” Jackson snarled to pleading businessmen. “We have no money here, gentlemen.”
When Congress adjourned at the end of the summer of 1834, without taking any more dramatic action against Jackson than the censure resolution, Biddle was forced to back down, ease credit, and allow prosperity to return. This left Jackson free to turn to financial experiments of his own.
Jackson’s Specie Circular
Unwilling to let the seven state banks acquire too much power of their own, Jackson increased the number of state banks authorized to receive government deposits to over 300. He scrupulously paid off the federal debt, and arranged that the resulting surplus in the Treasury of $37 million be parceled out to the states.
Above all, he tried to nudge the nation back to the exclusive use of specie, of hard coin, and away from the use of paper bank notes by issuing—on July 11, 1836—a Specie Circular, which required that federal lands in the West be purchased only with hard coin.
Final Blow to the Bank
There were terrific victories for Andrew Jackson. Not only had he taken the financial power out of the hands of the Second Bank and distributed it across the nation to state banks, but he had also moved the country away from using the hated paper money, and demanded that it begin returning to the use exclusively of specie.
Of course, making the payment for federal lands and limiting that only to the use of hard coin was a stroke of genius because Jackson could not restrict ordinary financial transactions to specie. On the other hand, federal land sales, were one of the key elements in the development and expansion of American settlement. Thus, to make land sales, especially federal land sales, and limit those only to the use of hard coin was, in effect, to make the use of paper bank notes impossible in one of the most important segments of American economic exchange.
As Andrew Jackson’s second and last term as president circled towards its close in 1836, National Republicanism lay pretty much in the dust. Jackson was fully and securely in control of both Congress and the Supreme Court, now that he had Taney as chief justice. The Second Bank of the United States was reduced to seeking a pitiful substitute charter from the state of Pennsylvania. Even then, it only had a state charter, and that charter would only keep its doors open until 1841.
Common Questions About The Downfall of the Second Bank of the United States
The Specie Circular was passed on July 11, 1836.
Lewis McLane, the secretary of the treasury, and William Duane refused Jackson’s order to remove the deposits of the government from the Second Bank.
The Second Bank of the United States was reduced to seeking a pitiful substitute charter from the state of Pennsylvania. Even then, it only had a state charter, and that charter would only keep its doors open until 1841.