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THE SECOND BANK THE LIBRARY COMPANY OF PHILADELPHIA A C H A P T E R I N T H E H I S TO RY O F C E N T R A L B A N K I N G ACKNOWLEDGMENTS The Federal Reserve Bank of Philadelphia thanks John Van Horne, director of The Library Company of Philadelphia, and his staff, particularly Sarah Weatherwax and Nicole Joniec, for their help in providing many of the images that appear in this publication. The Bank also thanks the staff at Independence National Historical Park, particularly Karen Stephens, for providing images and for their help in finding information. THE SECOND BANK A Chapter in the History of Central Banking D ecember 24, 1814. On England states had threatened to secede from the that day, representatives Union and had offered little financial support to of the U.S. government, pay for the war. In addition, Congress had failed to meeting in Belgium, adequately address the question of financing the signed the Treaty of war and, consequently, had imposed no new taxes. It Ghent, which ended wasn’t until a year after the war started that Congress hostilities between the U.S. and Great Britain in raised $2 million by levying new taxes. Then the the War of 1812.1 However, given the lack of swift federal government assessed $3 million in taxes on communications in those days, it would be several the states, but this revenue wasn’t collected until 1814. weeks before news of the treaty reached U.S. shores. Ultimately, to pay for the war, the government sold In the meantime, unaware that England and short-term Treasury notes and long-term Treasury her former colonies were once again at peace, Major bonds.4 Nevertheless, the government’s credit had General Andrew Jackson led his troops against the declined because the war, overall, had produced no British army just outside of New Orleans in January decisive victories for the U.S. or England and because 1815. Jackson and his men defeated the British, and the New England states were reluctant to aid the the Battle of New Orleans made the military man federal government in this fight. But the government’s a national hero.2 Later, as President of the United chief problem was a lack of tax revenue.5 States, the general would figure prominently in In the years leading up to the war, which another battle: the one over the second Bank of the started in June 1812, the country’s economy was on an United States. upswing. With Napoleon waging war across Europe, The conflict between the U.S. and England, demand for U.S. goods had risen. America’s neutrality which was often derided as “Mr. Madison’s War,” during the Napoleonic wars meant that U.S. ships was not popular in many quarters.3 In fact, the New could ferry supplies, especially manufactured goods The Second Bank of the United States 1 THE LIBRARY COMPANY OF PHILADELPHIA The Bank, Mr. Van Buren, is trying to kill me, but I will kill it. bank would restore a stable currency, which would (which was called stock at the time). By early pay its bills, the government could help to avoid bouts of inflation and which would 1814, these three men, as well as Barker, Dallas, neither borrow money nor make be a boon to their business interests. Being lenders, and Calhoun, were convinced that re-establishing payments very easily. financiers lost money and wealth when the country a national bank was the only way to raise war experienced periods of inflation. finances, stabilize the currency, and increase the Proposing a Solution to the Country’s Economic Woes -Andrew Jackson To Martin Van Buren, 1832 and agricultural products, to Europe. Although the Embargo Act of 1807 caused a “drastic decline” in similar situation in 1783, Alexander Hamilton, the trade in 1808, the economy managed a “substantial first Secretary of the Treasury, proposed a solution to recovery” until 1812.6 the nation’s economic problems: establish a national Then war with Great Britain changed all that. When the country had found itself in a Hamilton prevailed and the first Bank of the United carried goods along the eastern seaboard were idled, States (often called the First Bank) was created.9 and goods had to be sent over land, an expensive and time-consuming option. By 1814, exports had expired in March 1811. So by January 1815, the declined to $7 million (compared with $61 million country had been without a national bank for in 1811) and imports to $13 million (compared almost four years. Many people thought that with $53 million in 1811).7 The decrease in foreign another national bank would again provide relief trade had widespread implications, affecting other for the country’s ailing economy and help in paying industries such as shipbuilding and agriculture and its war debt. Creating a Second National Bank Despite general support for a bank, the road to creating one was not entirely smooth. In April 1813, Parish, Astor, Girard, and Dallas met In January 1814, Congress received a petition signed by 150 businessmen from New York City, urging the legislative body to create a second national bank. In February 1814, Calhoun put forth a plan to create a bank that would be headquartered in the District of Columbia. The bill didn’t pass. In April 1814, President Madison, who But the First Bank’s 20-year charter had Six men figured prominently in establishing many goods. The decline in imports also reduced the the second Bank of the United States (commonly amount of customs duties collected, and therefore, called the Second Bank): financiers John Jacob Astor, the government couldn’t depend on these duties as a David Parish, Stephen Girard, and Jacob Barker; source of financing the war with Great Britain.8 Alexander Dallas, who would become Secretary Consequently, by early 1815, much like it value of government issues of debt.10 bank. After much debate between opposing factions, America’s foreign trade all but ceased. Even ships that resulting in significant increases in the prices for 2 debt and manage its revenues and had opposed the creation of the first Bank of the United States in 1791, reluctantly admitted to the This bill of exchange is made out for 500 pounds. Merchants used bills of exchange to receive more timely payment for their goods. Banks helped merchants by issuing bills of exchange and in doing so provided short-term loans to merchants. Courtesy, Independence National Historical Park need for another national bank. That same month, a congressman from Tennessee proposed a motion in the House to establish a committee that would look into the issue of a national bank. But rumors that England wanted peace led Madison to withdraw his support for the bank. He believed that a bank was of the Treasury in 1814; and Representative John had at the end of the Revolutionary War, the U.S. C. Calhoun of South Carolina. These men thought with Secretary of the Treasury Albert Gallatin, who necessary only to finance the war, so the committee found itself heavily in debt after fighting a war with that re-establishing a national bank would solve “desperately needed funds to continue the war.” As was dissolved. However, the government’s financial England and the economy was in a slump. With no some of the country’s economic woes. In particular, a result of this meeting, Astor, Girard, and Parish position continued to worsen. national bank to help the federal government issue Astor, Parish, Girard, and Barker felt that a national agreed to buy $9 million in government securities The Second Bank of the United States Later that year, Dallas was named Secretary of The Second Bank of the United States 3 TIMELINE FOR THE SECOND BANK OF THE UNITED STATES 1816 1817 P OM YC AR AN Y OF PHILADELPHIA In April President Madison signs the bill creating the second Bank of the United States In January, the Second Bank opens for business in Philadelphia 1828 1824 The bank moves into its new building at 420 Chestnut Street in Philadelphia 1826 A bank branch opens in Mobile, Alabama 1836 1832 A bank branch opens in Portland, Maine The Second Bank’s charter expires and the bank closes its doors. Request is submitted to Congress to renew the bank’s charter—four years before it’s set to expire. President Jackson vetoes the bill to re-charter. T HE 23 24 25 1823 Eighteen branches of the bank also open for business Nicholas Biddle becomes president of the Second Bank. 27 28 29 1827 A branch opens in Nashville, Tennessee 30 1829 Branches open in Buffalo and St. Louis 31 32 33 1830 Branches open in Burlington, VT; Utica, NY, and Natchez, MS. 34 35 36 President Jackson orders that all federal government deposits be removed from the Second Bank and deposited in state banks. R by the news, Congress voted to indefinitely postpone bank. Finally, after more debate, the measure passed. In October, a a vote on the national bank and refused to consider The Senate followed suit, passing the bill, but with congressional the question for the rest of that session.13 amendments to which the House agreed. On April 10, When Congress reconvened in December 1816, Madison signed the bill into law.15 sent Dallas a 1815, Madison urged its members to tackle the letter asking question of a uniform currency. State banks had no longer a consideration. But the government still him about the stopped redeeming their notes, mostly because of a had to deal with such issues as establishing a stable condition of the lack of specie. Madison felt that the time had come for currency, dealing with war debt, re-establishing trade, country’s credit. Congress to move the country toward a more uniform and pulling the economy out of its slump. Dallas sent a paper currency. Dallas agreed and in his annual lengthy reply report noted that “a national bank would be the best that included an outline of a plan for a new national bank.11 But Congress turned the plan down. In November, Calhoun introduced a new Receipt for seven shares of stock in the Second Bank purchased by order of General Thos. Cadwalader, August 22, 1828, receipted by E. R. Biddle for Thos. & Jno. G Biddle. Courtesy, Independence National Historical Park and perhaps the only adequate resource to relieve the country and the government from the present embarrassments.”14 But at the end of January 1816, Madison measure in the House of Representatives, but it By this time, of course, financing the war was Bank Structure and Operations The Second Bank opened for business in Philadelphia in January 1817. The bank had much vetoed yet another bank bill that had been passed by in common with its forerunner. Like the First Bank, 1815, Congress came close to passing another bank both chambers of Congress. Taking up the question it was originally housed in Carpenters’ Hall on Congress agreed on a bill outlining a new national bill, but that month, word of the peace treaty with once again in February, the House of Representatives Chestnut Street, moving into a new building up the bank, but President Madison vetoed it. In February England finally reached the American capital. Excited considered still another bill to create a national block at 420 Chestnut Street in 1824. also failed.12 Early the following year, both Houses of The Second Bank of the United States 37 1833 the Treasury. committee 4 26 THE LIBRARY COMPANY OF PHILADELPHIA 22 OF PHILADELPHIA In July, subscriptions to the Second Bank go on sale 1817 21 AN Y 1816 20 MP CO 19 Y AR 18 LIB 17 T HE LIB 16 The Second Bank of the United States 5 R Also, the bank’s functions and structure rate at 6 percent. Its board consisted of 25 directors, be paid in specie were similar to those of the First Bank. It would act with five of its members appointed by the President and the rest in as fiscal agent for the government — holding its and confirmed by the Senate.17 government bonds deposits, making its payments, and helping it issue However, capitalization for the Second debt to the public— and regulate the economy by Bank was $35 million, considerably higher than the setup with the issuing and redeeming banknotes and keeping the $10 million underwriting of the First Bank First Bank. However, state banks’ issuance of notes in check.16 Also like and a great deal of money at that time.18 But subscriptions to the its predecessor, the Second Bank had a 20-year subscriptions (or scrips) would be sold in the Second Bank sold charter; was a commercial bank that accepted same proportion: 20 percent would be held by the for $100 each, not the deposits and made loans to the public, both government and 80 percent by private investors. $400 per share of its businesses and individuals; and capped its loan Furthermore, one-quarter of the share price would predecessor. Panics, Recessions, AND Banking Crises 1819 Often described as the first major financial 1837 Banks had to suspend redeeming their crisis in the U.S., this panic was part of a worldwide notes for specie because of a lack of gold and silver. crisis. In the U.S. the panic had its roots in the As a result, many banks were illiquid, and many Second Bank’s operations. The bank had extended banks failed. This crisis was fueled in part by a lack a large number of loans shortly after it opened. of confidence in the nation’s paper currency. of specie, the bank had to contract its lending and extensions of credit. This credit contraction led, in turn, to bankruptcies. Foreclosures, bank failures, a drop in real estate prices, and a slump in agriculture and manufacturing ensued. 1825 This panic was triggered by a stock market crash due to speculative investments in Latin A bill of exchange issued by the Second Bank in Philadelphia and signed by Nicholas Biddle. Coinage Act of 1873 depressed the price of silver, they could pay off their debts with cheaper dollars. hurting the interests of U.S. silver mines and further The act also responded to mining interests; mining contributing to the country’s economic problems. companies had extracted a large quantity of silver This economic crisis led to a recession that lasted from mines in the West. Furthermore, the failure of until 1879. a major railroad and the withdrawal of European investment led to a stock market crash, a banking 1882-85 The recession of these years was mostly due to the end of the railroad construction But as an increasing trade deficit led to an outflow 1857 The collapse of the Ohio Life Insurance and Trust Company and a bank panic in the fall of 1857 led to an economic crisis. More than 5,000 businesses failed during the first year of the panic. 1907 The failure of the Knickerbocker Trust particularly iron and steel. Company in New York led to runs on other trust companies. A general panic ensued. The panic 1884 Coming in the midst of the 1882-85 recession, this panic occurred when European gold 1873 The collapse of Jay Cooke and Co., the largest bank in the U.S. at that time, in September reserves were depleted and banks called in loans. 1893 The Sherman Silver Purchase Act, which Cooke’s bank was the exclusive agent for the sale was passed in 1890, increased the amount of silver of Northern Pacific Railroad bonds. When the the federal government had to purchase each firm could not sell a sufficient number of railroad month. The act was intended to lessen the fears of bonds to investors to cover its obligations, the stock many farmers who were in debt and couldn’t pay during these years. An expansion fueled by land market reacted negatively, and runs on several other off those debts because of deflation. They wanted speculation followed. large financial institutions led to their failure. The the government to, in effect, cause inflation so that it also led to a decline in economic activity in the U.S. 1833-34 The U.S. underwent a brief recession collapse, and a run on the U.S. gold supply. boom. The end of the boom affected other industries, 1873 triggered a panic on the stock exchange. America. The crisis hit England particularly hard, but 6 — again, similar to triggered hundreds of bank failures, a significant decrease in the money supply, and a deep recession. Financier J.P. Morgan formed a syndicate with his fellow bankers, who were able to put sufficient liquidity into the economy to quell the panic. This panic led to the creation of a federal commission to study the economy and ways to reduce the number of crises and panics. The findings of this commission eventually led to the creation of the Federal Reserve System in 1913. Sources: Kindleberger and Aliber; Glasner; Bordo and Haubrich 7 Subscriptions went on sale in of the Second Bank greatly aided the country’s July 1816, and the sale period was set westward expansion and its economic growth at three weeks. To make it easier for in several ways. The branches took in revenues investors to buy subscriptions, sales from the sale of federal land. They also provided were held in 20 cities. However, when, credit to businesses and farmers, and these loans 14 after three weeks, $3 million of scrips helped to finance the production of goods and 33 remained unsold, Stephen Girard agricultural output and the shipment of these bought them.19 goods to domestic and foreign destinations. MAP OF SECOND BANK AND ITS BRANCHES 21 24 25 10 22 15 12 12 55 18 6 9 23 16 8 13 77 20 11 17 26 22 44 19 11 Philadelphia, Pennsylvania (1817) 13 Norfolk, Virginia (1817) 1 Augusta, Georgia (1817)* 14 Portsmouth, New Hampshire (1817) 2 Baltimore, Maryland (1817) 15 Providence, Rhode Island (1817) 3 Boston, Massachusetts (1817) 16 Richmond, Virginia (1817) 4 Charleston, South Carolina (1817) 17 Savannah, Georgia (1817) 5 Chillicothe, Ohio (1817) 18 6 Cincinnati, Ohio (1817) 7 Because the Second Bank also functioned as a commercial foreign trade were deposited in the branches. bank and made loans to individuals Moreover, the network helped move the and companies, its banknotes (paper money deposited in the branches to other currency) most commonly entered parts of the nation, facilitating both the circulation as part of the loan process government’s ability to make payments and rather than through the purchase of the branches’ ability to supply credit. U.S. government securities. Many state Unlike modern central banks, banks envied the Second Bank because the second Bank of the United States did it received all of the government’s not officially set monetary policy. Nor deposits and therefore could make did it regulate other banks. Nonetheless, more loans. Although state banks its prominence as one of the largest issued their own banknotes when corporations in America and its branches’ making loans, these banks did not broad geographic position in the have the size or geographic scope of expanding American economy allowed the Second Bank. it to conduct a rudimentary monetary Indeed, the Second Bank’s policy. The bank’s notes, backed by substantial gold reach was far greater than that of its reserves, gave the country a more stable national Washington, D.C. (1817) predecessor. Shortly after the bank currency. By managing its lending policies and the Cover of a report submitted to the Senate of Pennsylvania, arguing in favor of having the government’s deposits returned to the Second Bank. 19 Mobile, Alabama (1826) flow of funds through its accounts, the bank could 20 Nashville, Tennessee (1827) opened, it had 18 branches and later Courtesy, Independence National Historical Park Fayetteville, North Carolina (1817) 8 Lexington, Kentucky (1817) 21 Portland, Maine (1828) added eight more. But one closed, so — and did — alter the supply of money and credit the bank ultimately ended up with in the economy and hence the level of interest rates 25 branch offices around the country charged to borrowers. banks. In the course of business, the Second Bank (again, similar to the First Bank) would accumulate 9 Louisville, Kentucky (1817) 22 Buffalo, New York (1829) 10 Middletown, Connecticut (1817) 23 St. Louis, Missouri (1829) 11 New Orleans, Louisiana (1817) 24 Burlington, Vermont (1830) 12 New York City, New York (1817) 25 Utica, New York (1830) (see the map).20 The First Bank, in 26 Natchez, Mississippi (1830) comparison, had only eight branches. today’s monetary policy actions, can be seen most the notes of the state banks and hold them in clearly in the Second Bank’s interactions with state its vault. When it wanted to slow the growth of * Closed that same year The extensive branch network 8 Customs duties collected as a result of The Second Bank of the United States These actions, which had effects similar to The Second Bank of the United States 9 money and credit, it would present the notes for collection in gold or silver, thereby reducing state banks’ reserves and putting the brakes on state banks’ ability to circulate new banknotes (paper currency). To speed up the growth of money and credit, the bank would hold on to the state banks’ notes, thereby increasing state banks’ reserves and allowing those banks to issue more banknotes through their loan-making process. In addition, banknotes issued by the Second Bank were widely accepted throughout the country. And unlike notes issued by state banks, Second Bank notes were the only ones accepted for payment of federal taxes. Bank Leadership The first president of the Second Bank was William Jones, a political appointee and a former Secretary of the Navy who had gone bankrupt. Under Jones’s leadership, the bank “proceeded to run the economy into the ground by first extending far too much credit, then quickly restricting it. A financial panic ensued, followed by a steep recession that saw interest This political cartoon, called “The Experiment in Full Operation,” shows Andrew Jackson (on pedestal at right) as a king (note the crown) cracking the whip over the ship of state. Vice President Martin van Buren is leaning against the pedestal. Jackson (in the words above his head) is saying, “… Andrew Jackson knows what’s best for the country… don’t I, Martin?” Van Buren is urging Jackson not to give up the ship or “I shall not succeed you.” Note that the chest to the right of Van Buren is marked “Deposits” and “No Bank.” The “crew members” are grumbling among themselves about having no commerce and no trade to protect. Courtesy, The Library Company of Philadelphia rates spike, farm produce prices plummet, and unemployment soar.”21 When Jones resigned in 1819, shareholders elected Langdon Cheves, an 10 branches.22 He presented state banknotes for specie, cause in the U.S. was the mismanagement of the a request that sent many financial institutions into Second Bank. This widely held view that the bank bankruptcy because they didn’t have enough gold contributed to bad economic times helped turn public opinion against it. Political cartoons depicting the battle over the Second Bank were quite common during Jackson’s administration. Here Jackson is shown as “King Andrew”; many people felt that Jackson was acting like a monarch, taking too much power for himself. attorney from South Carolina who had served and silver on hand.23 A depression soon followed as Speaker of the House of Representatives, as the imposition of these harsh measures. (See Panics, In 1823, when Cheves withdrew his name president of the bank. Cheves cut in half the number Recessions, and Banking Crises.) Prices collapsed and from consideration for re-election to the top bank of notes in circulation, made fewer loans, foreclosed unemployment was high. Although the economic post, Nicholas Biddle, a member of a wealthy and Courtesy, The Library Company of Philadelphia on mortgages, and exerted more control over the slump was part of a worldwide downturn, the main prominent Philadelphia family, became head of the The Second Bank of the United States The Second Bank of the United States 11 bank. Biddle had previously served on the bank’s rumors during the election campaign of 1828 that board of directors and in the Pennsylvania legislature. Henry Clay, a congressman from Kentucky, was With Biddle’s guidance, animosity toward manipulating the Second Bank to help Jackson’s the bank lessened somewhat. In fact, under Biddle, opponent, John Quincy Adams, win re-election “the Bank became a valuable ally to business just as to the presidency.26 In addition, by the time of the the country moved into a new period of expansion election, the bank had become a “financial colossus” and economic thrust. Providing the necessary capital that could effectively drain specie from state for this expansion, the bank helped to advance a banks and regulate currency according to its own decade of hitherto unparalleled prosperity.”24 After perceptions of what was needed.27 he took office, Biddle increased the number of notes The bank did become an issue in the election issued by the Second Bank, and he attempted to stem The Second Bank Building: the flow of state banks’ notes by BANK, CUSTOMS HOUSE, AND PORTRAIT GALLERY pressing state banks to redeem their own notes in specie.25 Then in 1828, Andrew Jackson, hero of the Battle of New Orleans and a determined foe of banks in general Check from the Second Bank, dated January 27, 1825, for $6,643.05, signed by E.L. Burd, the bank’s chief cashier. Courtesy, Independence National Historical Park and the Second Bank in particular, of 1832, which sent Jackson back to the White House was elected President of the United States. During for a second term. A request to renew the bank’s this former soldier’s time in the White House, he charter was sent to Congress in January 1832, four fought another battle — one that would ultimately years before the charter was set to expire. A bill to defeat the Second Bank. renew the charter passed both the House and Senate, Battle over the Second Bank The Second Bank wasn’t an issue in the 12 expired in 1836, the building continued in use as the United States still stands at 420 Chestnut Street a bank until 1841, when Nicholas Biddle’s state- in Philadelphia. The Greek revival structure, built chartered successor to the Second Bank went out of between 1819 and 1824 and designed by architect business. The structure sat vacant until the federal William Strickland, was modeled on the Parthenon government bought it in 1845 to use as a Customs in Athens. Like its predecessor, the first Bank of the House for the port of Philadelphia. United States, the Second Bank opened for business in Carpenters’ Hall, moving into the new building larger space, and in 1939, the Treasury Department on Chestnut Street in 1824. sold the building to the National Park Service with Constructed In 1935, the Customs House moved to the stipulation that the Park Service find a suitable of Pennsylvania blue tenant. That tenant turned out to be the Carl Schurz marble, the building Foundation, which used the building for its national cost half a million headquarters as well as a research library and dollars. It contained a exhibits. but Jackson vetoed it and there weren’t enough votes vestibule and a main to override the veto. lobby, which opened gallery featuring paintings of many colonial leaders on to the central and other prominent figures in American history. Why was Jackson so opposed to the Second him to Washington a strong distrust of banks in first swept Jackson into office. However, Jackson’s general, stemming, at least in part, from a land dislike of the Second Bank may have been fueled by deal that had gone sour more than two decades Today, the building is home to a portrait banking room, the Bank? On a personal level, Jackson brought with presidential campaign of 1828, the election that The Second Bank of the United States The building that housed the second Bank of * largest space on the first floor. Carpenters’ Hall at 320 Chestnut Street in Philadelphia After the Second Bank’s charter *This description of the Second Bank building draws heavily on “Historic Structures Report Part III: Architectural Data Section. The Interior of the Second Bank of the United States,” prepared by Norman Souder (architect) for Independence National Historical Park. The Second Bank of the United States 13 13 states’ rights. In addition, he Jackson’s order met with heavy criticism from felt that the bank put too much members of his administration, by the end of 1833, power in the hands of too few most of the government’s money had been moved private citizens, power that could out of the Second Bank and into state banks. The loss be used to the detriment of the of the federal government’s deposits caused the bank government. The bank also lacked to shrink in both size and influence.31 an effective system of regulation. In other words, it was too far outside responded to Jackson’s action by calling a meeting the jurisdiction of Congress, the at which he announced that he would limit credit President, and voters.29 and call in loans in the hopes of creating a backlash Nicholas Biddle, president Issued in October 1837, this stock certificate states that Francis Holladay of Bristol, England, is entitled to 40 shares of the capital stock of the Bank of the United States. By that time, the Second Bank had lost its national charter and was operating as a Pennsylvania state-chartered bank. Courtesy, Independence National Historical Park of the Second Bank from 1823 until against Jackson. Biddle thought that putting pressure on financial markets might force Jackson to relent its demise in 1836, was the scion of an and re-deposit government funds in the Second Bank. influential Philadelphia family. Biddle He further hoped that Jackson would even consider was 37 years old when he assumed renewing the bank’s charter. But Biddle’s move the presidency of the Second Bank. backfired: In the end, it helped to support Jackson’s Although Biddle was smart and well- claim that the Second Bank was an institution created before. In that deal, Jackson had accepted paper educated (he graduated from Princeton at age 15), to serve the interests of the wealthy, not to meet the notes — essentially paper money — in payment he was also vain and arrogant. Unfortunately, those nation’s financial needs.32 for some land that he sold. When the buyers who traits wouldn’t allow him to accept any criticism had issued the notes went bankrupt, leading to a of the Second Bank’s operations, especially claims series of problems for Jackson, the paper he held about the mismanagement of some of the bank’s became worthless. Although Jackson managed to branches. Biddle also wasn’t above allowing the save himself from financial ruin, he never trusted bank to make loans to his friends while denying paper notes again. In Jackson’s opinion, only specie loans to those who were deemed not so friendly. — silver or gold coins — qualified as an acceptable His actions subjected the bank to public criticism. medium for transactions. And since banks issued However, despite Biddle’s vanity, arrogance, and paper notes, Jackson had “developed a deep sometimes dubious loan decisions, he was an suspicion about banking practices.” Jackson also excellent administrator who understood banking.30 distrusted credit — another function of banks — Jackson saw his win in the election of 1832 believing that people should not borrow money to as “proof” that people wanted him to get rid of the pay for what they wanted.28 Second Bank. Shortly after the election, Jackson Politically, Jackson believed that a federal institution such as the Second Bank trampled on 14 Meanwhile, in Philadelphia, Biddle The Second Bank of the United States ordered that federal deposits be removed from the national bank and put into state banks. Although Closing of the Second Bank of the United States One event that foreshadowed the bank’s demise was its supporters’ inability to muster a two-thirds majority to override Jackson’s veto in 1832. More damaging still, the removal of federal deposits resulted not only in a reduction in the bank’s size but also in its ability to influence the nation’s currency and credit. Then, in April 1834, the House of Representatives voted not to re-charter the bank and also confirmed that federal deposits should remain in the state banks. All of these factors, coupled with Jackson’s determination to do away with the bank and the widespread defeat of the bank-favorable Whig party in the congressional elections held in the spring of 1834, heralded the bank’s ultimate fate.33 It would be more than 75 years before the United States made another attempt to establish a central bank. During that time, the U.S. economy seemed to move from one financial crisis to another. (See Panics, Recessions, and Banking Crises.) But after the Panic of 1907, which resulted in numerous bank failures and a deep recession, Congress established a commission to look into ways to effectively smooth out the economy’s ups and downs. Ultimately, the commission’s findings Checks drawn on the Second Bank (note the words in the upper-left corner), dated February 12, 1824, for $300, and February 3, 1824, for $24.84, and signed by Nicholas Biddle. would lead to the creation of the Federal Reserve System in 1913. Courtesy, Independence National Historical Park The Second Bank of the United States 15 EN DNOT E S Explanations of terms in bold italics can be found in the Glossary. 2 Brief biographies of the people mentioned in the text can be found in the Biographical Sketches. 3 See the Glossary for more information about the War of 1812. 4 See Chester Wright, p. 225-27. Wright also says that Congress failed to bolster the U.S. naval fleet, which had 16 warships compared with England’s 600. Historian Edward Kaplan notes that “many congressmen…remained unconcerned about the financing of the war because they believed it would be over within weeks” (Kaplan, p. 39). 5 See Chester Wright, p. 226. 6 See Chester Wright, pp. 201-02. In 1807, President Thomas Jefferson had urged Congress to pass the Embargo Act, which essentially banned all foreign trade with the United States. The act proved to be so unpopular that it was repealed in 1809. 7 These numbers come from Chester Wright, p. 227-28. Some economic historians give slightly different dollar estimates of imports and exports in these years. In 2009 dollars, $7 million would be more than $85 million; $61 million more than $990 million; $13 million more than $158 million; and $53 million more than $860 million. 8 See Kaplan, p. 39. 9 For more on the history of the First Bank, see the Federal Reserve Bank of Philadelphia’s 2009 publication, The First Bank of the United States: A Chapter in the History of Central Banking. 10 See Walters, p. 118. 11 See Clarke and Hall, pp. 481-84. 12 See Hammond, p. 231. 13 This discussion is based on that in Hammond, pp. 231-32. Historian Robert Wright agrees that “by time word that the war was finally over reached the United States in early 1815, most Americans had rediscovered the need for a Hamiltonian central bank.” See Robert Wright, p. 72. 14 See Hammond, pp. 232-33. 15 See Hammond, pp. 233-34. Hammond also points out that, unlike with the First Bank, the issue of whether a national bank 1 REF ERENC E S Bordo, Michael D., and Joseph G. Haubrich. “Credit Crises, Money, and Contractions: An Historical View,” Journal of Monetary Economics, 57:1 (January 2010), pp. 1-18. Catterall, Ralph C.H. The Second Bank of the United States. Chicago: University of Chicago Press, 1903. Clarke, M. St. Clair, and D.A. Hall. Legislative and Documentary History of the Bank of the United States, Including the Original Bank of North America. Washington, Gales and Seaton, 1832. 16 was unconstitutional was no longer an important consideration. He notes that although there were a few “die-hards” who still raised the issue of the bank’s unconstitutionality, no one paid them much attention. Even James Madison, who, 25 years before, had ardently argued against the First Bank on the grounds of its unconstitutionality, had by this time come to see the necessity of such an institution. One congressman who opposed the bank was John Eppes of Virginia, Thomas Jefferson’s son-in-law. Like his father-in-law’s opposition to the First Bank, Eppes’s opposition to the Second Bank was based on a belief that a national bank was unconstitutional. See Kaplan, p. 50. For more about Thomas Jefferson and the First Bank, see the Federal Reserve Bank of Philadelphia’s 2009 publication The First Bank of the United States: A Chapter in the History of Central Banking. 16 The first Bank of the United States was in operation from 1791 until 1811. For more information, see the Federal Reserve Bank of Philadelphia’s booklet, The First Bank of the United States: A Chapter in the History of Central Banking. 17 See Chester Wright, p. 368, and Kaplan, p. 55. The President did not appoint board members of the First Bank. 18 The sum of $35 million would be approximately $485 million today; $10 million would be more than $220 million today. 19 This description of the subscription sales is based on Kaplan, pp. 55-56. This sale stands in stark contrast to the initial public offering of subscriptions to the First Bank, during which scrips sold out so quickly that many investors were left out. 21 See Robert Wright, p. 72. 22 See Chester Wright, p. 368. 23 See Remini, pp. 27-28. 24 See Remini, p. 32. 25 See Chester Wright, p. 369. 26 See Meacham, p. 75. 27 See Remini, p. 39. 28 See Remini, pp. 18-20. 29 See Remini, pp. 43-45. 30 See Remini, p. 35. 31 See Meacham, pp. 267-71, and Remini, pp. 125-26. 32 See Meacham, pp. 267-271. 33 See Hammond, p. 438 and Meacham, pp. 278-79. See Catterall, pp. 355-58, for more about the Whigs’ defeat. Kaplan, Edward S. The Bank of the United States and the American Economy. Westport, CT: Greenwood Press, 1999. Kindleberger, Charles P., and Robert Aliber. Manias, Panics, and Crashes: A History of Financial Crises, 5th ed. New York: John Wiley & Sons, 2005. Meacham, Jon. American Lion: Andrew Jackson in the White House. New York: Random House, 2008. Remini, Robert. Andrew Jackson and the Bank War: A Study in the Growth of Presidential Power. New York: W.W. Norton and Company, 1967. Federal Reserve Bank of Philadelphia. The First Bank of the United States: A Chapter in the History of Central Banking. Federal Reserve Bank of Philadelphia, June 2009. Walters, Raymond, Jr. “The Origins of the Second Bank of the United States,” Journal of Political Economy, 53:2 (June 1945), pp. 115-31. Glasner, David, ed. Business Cycles and Depressions: An Encyclopedia. New York: Garland Publishing, Inc., 1997. Wright, Chester Whitney. Economic History of the United States. New York: McGraw-Hill Book Company, 1949. Hammond, Bray. Banks and Politics in America from the Revolution to the Civil War. Princeton, NJ: Princeton University Press, 1957. Wright, Robert E. The First Wall Street: Chestnut Street, Philadelphia, and the Birth of American Finance. Chicago: University of Chicago Press, 2005. The Second Bank of the United States GL O S SARY BANKNOTE A negotiable instrument; a promissory note (promise to pay) that is used as money. BATTLE OF NEW ORLEANS The final battle of the War of 1812. Andrew Jackson and his troops engaged the British in New Orleans in December 1814 and defeated them in January 1815. The battle was fought after the peace treaty (see Treaty of Ghent) was signed. But because it took a long time for information to travel in those days, word about the treaty didn’t reach the United States until February 1815. The battle made Jackson a national hero. CENTRAL BANK A governmental institution responsible for issuing currency and monetary policy, which involves the overall growth of money and credit and the level of short-term interest rates. The Federal Reserve is now the central bank of the United States. CUSTOMS DUTIES A form of tax levied on goods traded internationally. FISCAL AGENT An organization that handles finances for another organization. The Second Bank (like the First Bank) acted as the government’s fiscal agent. Today the Federal Reserve fills the role of fiscal agent for the U.S. government. INITIAL PUBLIC OFFERING (IPO) A company issues common stock or shares to the public for the first time. SPECIE Money in the form of gold or silver. In the colonial period and in the early years of the United States, specie often referred to gold or silver coins. TREATY OF GHENT The peace treaty that ended the War of 1812. In December 1814, representatives of the American and British governments met in Ghent (in modern-day Belgium) to sign the treaty that ended the war between England and its former colonies. WAR OF 1812 A war between the United States and Great Britain that started in June 1812. The United States declared war on Great Britain because Britain tried to curtail trade between the United States and France, England’s long-standing foe. In addition, British naval ships were stopping American vessels on the seas searching for experienced English sailors who had left or deserted from the British navy, also sometimes pressing Britishborn American sailors into service in the British navy as well. The Americans also saw the war as an opportunity to make Canada part of the United States, thereby removing British influence from the North American continent. However, the U.S. failed in its attempt to take Canada from the British. WHIG PARTY A political party that existed in the United States roughly from the 1830s to the 1850s. Party members generally opposed Andrew Jackson’s policies. The party took its name from an English political party that was opposed to the monarchy. SUBSCRIPTIONS (OR SCRIPS) Down payments on the purchase of new shares of stock in a company or bank; an initial partial payment of the full amount required to purchase a share of stock, with the remainder paid in installments over a period of time. Scrips were tradable and could be purchased after their initial issuance by others seeking to acquire the company’s or bank’s stock. The Second Bank of the United States 17 Biddle proved to be an able administrator. However, Born in Germany, John Jacob Astor this well-educated and scholarly Philadelphian clashed came to the newly formed United with the country-bred self-made man in the White States in early 1784. Over time, he (1779-1871) Born in Maine to Quaker parents, law. In 1826, Barker was accused of a conspiracy to defraud, involving the failure of a large insurance company. He was convicted of the crime, but the conviction was overturned. Barker declared bankruptcy in 1867 and spent his last few years living with his son THE LIBRARY COMPANY OF PHILADELPHIA in Philadelphia. Nicholas Biddle (1786-1844) Nicholas Biddle was the son of a wealthy and influential Philadelphia family. He graduated from Princeton at age 15, and while touring Europe as a young man, he became interested in Greek history and culture. He brought numerous pieces of art and sculpture from Greece for his estate, Andalusia, just outside Philadelphia. Biddle served in the Pennsylvania legislature and on the board of directors of the second 18 The Second Bank of the United States COLLECTION OF THE U.S. HOUSE OF REPRESENTATIVES eventually moved to New Orleans, where he practiced A South Carolinian by birth, he returned to Philadelphia to practice law. He died in John C. Calhoun graduated from New Jersey in 1817. Yale, studied law, and eventually returned to his home state to Washington, D.C. in 1850. along with several other wealthy men, pushed Congress to establish the second Bank of the United States. He of a second national bank. After leaving Washington, the United States under John Quincy Adams. He died in also a lawyer and financier, who, the United States. He also supported the establishment (1782-1850) a representative and a senator and was vice president of while still a young man. He was financial footing and to create a uniform currency for John C. Calhoun practice. He served his state as both Jacob Barker made a fortune in trade post, he worked to get the government back on sound THE LIBRARY COMPANY OF PHILADELPHIA COLLECTION OF THE NEW-YORK HISTORICAL SOCIETY. NEG. #83851d Jacob Barker THE LIBRARY COMPANY OF PHILADELPHIA establish the second Bank of the United States. When United States. Madison named Dallas Secretary of the Treasury. In that Philadelphia in 1844. of his affluent contemporaries to convince Congress to Astor died in 1848, he was the wealthiest person in the he moved to Philadelphia. In 1814 President James was not a success and closed in 1841. Biddle died in wealth during the War of 1812 and worked with several Dallas was sent to Great Britain by he went to the West Indies. After three years there, institution going as a commercial bank, but this venture and eventually amassed a fortune. He added to his Born in Kingston, Jamaica, Alexander After completing his education, battle over the Second Bank. He tried to keep the the fur trade, bought up real estate in New York City, (1759-1817) his English parents for an education. House, Andrew Jackson. Ultimately, Biddle lost the built up a prosperous business in Alexander J. Dallas Albert Gallatin (1761-1849) Born in Switzerland, Albert Gallatin came to the United States in 1780, time at sea, sailing to various ports, including some in the United States. He eventually made his home in Philadelphia. During the yellow fever epidemic in that city in 1793, as others fled, Girard stayed to help care for the sick. When the first Bank of the United States was dissolved in 1811, Girard bought many of its assets, including the building on Third Street. There, he started his own bank, which supplied credit to the U.S. government during the War of 1812. Girard Bank remained a Philadelphia financial institution until it merged with Mellon Bank in 1983. Along with several other wealthy businessmen, Girard supported the establishment of a second national bank. He died in Philadelphia in 1831. landing in Boston. He served in Congress from 1795 until 1801 and Langdon Cheves often found himself at odds with Treasury secretary (1776-1857) Alexander Hamilton, although he ultimately supported Born in a small town in South Hamilton’s plan for a national bank. Gallatin was Carolina, Langdon Cheves initially appointed Secretary of the Treasury by Thomas eventually moved to Charleston, Jefferson in 1801, and reappointed to the post by James where he continued his education, Madison in 1809, he continued as secretary until 1814, studied law, and opened a practice. After holding the longest tenure of any secretary in the Treasury’s various positions in the state government, Cheves history. As secretary in 1813, Gallatin looked for ways represented his home state as a member of the House of to help the government finance the War of 1812. He Representatives. He succeeded Henry Clay as Speaker prevailed upon several wealthy Americans to buy $9 of the House, but he declined an offer from President million in government securities (called stock back James Madison to become Secretary of the Treasury. then), thus bolstering the government’s revenues. He became president of the second Bank of the United Gallatin died in New York in 1849. States in 1819 and resigned his post in 1823. He died in Columbia, South Carolina in 1857. in his adopted country. In his early years, he spent THE LIBRARY COMPANY OF PHILADELPHIA (1763-1848) THE LIBRARY COMPANY OF PHILADELPHIA THE LIBRARY COMPANY OF PHILADELPHIA of the bank in 1823. Despite being vain and arrogant, Alexander Hamilton (1757-1804) Alexander Hamilton was born on the island of Nevis in the British West Indies. When George Washington was elected the nation’s first president in 1789, he appointed Hamilton the first Secretary of the Treasury. The following year, Hamilton wrote “Report on a National Bank,” in which he laid out his plans to establish a single national bank. One year later, Hamilton’s proposed financial institution materialized in the form of the Bank of the United States. Hamilton died in 1804, one day after being mortally wounded in a duel with Aaron Burr. THE LIBRARY COMPANY OF PHILADELPHIA Bank of the United States. He was named president John Jacob Astor COLLECTION OF THE NEW-YORK HISTORICAL SOCIETY. NEG. #83852d Biographical Sketches Andrew Jackson (1767-1845) Andrew Jackson was born in 1767 on the border between North and South Carolina, the third son of Irish immigrants. Jackson’s father Stephen Girard died before he was born. Although Jackson’s family (1750-1831) was not wealthy, his mother had enough money to send French by birth, Stephen Girard became a U.S. citizen and ended up being one of the wealthiest men Andrew to school. Jackson eventually became a licensed attorney and, at age 21, made his way to the territory that would become Tennessee, where he served as a The Second Bank of the United States 19 district attorney and a judge. Jackson was the first man elected to the House of Representatives from Tennessee and also served in the Senate. He was a major general during the War of 1812, leading American troops against the British in a battle just outside New Orleans. THE LIBRARY COMPANY OF PHILADELPHIA Biographical Sketches The battle made the general a national hero. In 1828, Jackson was elected to the presidency. Often portrayed as “King Andrew” in political cartoons of the day (see page 10), Jackson freely used his veto power and often would not concede to Congress on matters of policy. Re-elected to a second term in 1832, Jackson began a battle to defeat the second Bank of the United States. “Old Hickory,” the country lawyer who had attained the presidency, clashed with the wealthy urbanite Nicholas Biddle over the bank’s fate. Through a series of maneuvers designed to destroy the bank, Jackson ultimately won the fight. Jackson died at his Tennessee home, the Hermitage, in June 1845. William Jones James Madison (1751-1836) Often called the Father of the Constitution, James Madison became the fourth president of the United States in 1808. Before that, he served in the Virginia Assembly and was a delegate to the Continental Congress. He was one of the authors of the “Federalist Papers,” essays often credited with contributing to the ratification of the Constitution. He is also credited with helping to frame the Bill of Rights. Like his fellow Virginian Thomas Jefferson, Madison opposed the creation of the first Bank of the United States in 1791. In 1811, during Madison’s first administration, the bank’s charter expired. However, after the War of 1812, the government once again found itself with mounting debt and the country was in increasing economic distress. But there was no central bank to help ease these conditions. In 1816, Madison signed the bill chartering the second Bank of the (1760-1831) United States. Madison died at his Virginia plantation, Born in Philadelphia, William Jones served in the Montpelier, in June 1836. Revolutionary War. He moved to Charleston, South Carolina, but eventually returned to his home state, which elected him to the House of Representatives. He was Secretary of the Navy in President James Madison’s administration. He was appointed the first president of the second Bank of the United States, holding that post from 1816 to 1819. He died in Bethlehem, Pennsylvania, in 1831. 20 The Second Bank of the United States David Parish (1778-1826) Like John Jacob Astor, David Parish was born in Germany, the son of an Englishman who had set up business there. Parish eventually made his way to the United States, settling in New York state, near the Canadian border. He died in 1826. www.philadelphiafed.org DECEMBER 2010