Eleanor Finch
The Second Bank of the United States was a national bank headquartered in Philadelphia, Pennsylvania, and chartered from 1816 to 1836. It was established as a public-private enterprise to address the country's economic woes and pay off war debts. The bank's constitutionality was a subject of debate, with President Andrew Jackson leading the opposition. Jackson argued that the bank lacked constitutional legitimacy, posed a threat to states' rights and individual liberty, and fueled wealth for a privileged few. Despite the Supreme Court ruling in McCulloch v. Maryland (1819) and the 1832 presidential election that affirmed the bank's constitutionality, Jackson vetoed the bank's charter, sparking the Bank War. The debate over the Second Bank highlighted differing interpretations of the Constitution and the role of financial institutions in American democracy.
| Characteristics | Values |
|---|---|
| Constitutionality | The Supreme Court affirmed the constitutionality of the Second Bank of the United States in McCulloch v. Maryland (1819). Chief Justice John Marshall wrote that the formation of the Bank by an act of Congress met the requirements of the "Necessary and Proper Clause." |
| Political Opposition | President Andrew Jackson and the Old Republicans opposed the Second Bank, arguing that it lacked constitutional legitimacy and posed a threat to state sovereignty and individual liberties. Jackson also believed that the nation's money supply should be based solely on gold and silver coin, rather than paper currency. |
| Economic Impact | The Second Bank was intended to stabilize the country's economy, provide relief from war debts, and avoid financial crises by regulating local bank lending. It served as a national bank, comparable to the Bank of England and the Bank of France, and held 20% of the federal government's capital. |
| Function | The Second Bank handled fiscal transactions for the federal government, issued and redeemed banknotes, regulated state banks, and made loans to the public, businesses, and individuals. It did not set monetary policy, regulate private banks, or act as a lender of last resort. |
| Charter | Chartered from February 1816 to January 1836, with a 20-year charter. It was headquartered in Philadelphia, Pennsylvania and authorized to have branches in multiple states. |
| Ownership | The Second Bank was a private corporation with public duties. 80% of its capital was held by 4,000 private investors, and 20% was owned by the federal government, making it more characteristic of a government bank than other national banks of that era. |
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What You'll Learn
The Supreme Court case McCulloch v. Maryland
McCulloch v. Maryland was a landmark U.S. Supreme Court case in 1819 that defined the scope of the U.S. Congress's legislative power and its relationship with the powers of American state legislatures. The case revolved around a tax imposed by the state of Maryland on the Second National Bank, which was chartered by Congress. James W. McCulloch, a Federal cashier at the Baltimore branch of the U.S. bank, refused to pay the taxes imposed by the state, leading to a lawsuit filed by Maryland against McCulloch to collect the taxes.
The Supreme Court, in a significant decision made by Chief Justice John Marshall, ruled that the federal government held sovereign power over states and that the Necessary and Proper Clause of the Constitution grants Congress implied powers not explicitly stated in the Constitution. This decision established the principle that the federal government is supreme over the states, limiting the states' ability to interfere with its functions. The Court's interpretation of the elastic clause or the "Necessary and Proper" Clause allowed for the expansion of federal power and provided a guideline for the relationship between the federal government and the states.
The McCulloch v. Maryland case addressed the issue of federal power and commerce, specifically concerning the power of Congress to charter a bank. This case sparked broader discussions about the division of powers between the state and federal governments and the constitutionality of a national bank. The decision affirmed the constitutionality of the Second Bank of the United States, which had been established in 1816 to help control the amount of unregulated currency issued by state banks.
The Second Bank of the United States was a national bank, similar to the Bank of England and the Bank of France, but with the key distinction that the U.S. government owned 20% of its capital. It was a private corporation with public duties, handling fiscal transactions for the U.S. government and accountable to Congress and the U.S. Treasury. The establishment of the Second Bank was supported by financiers and lenders who believed it would provide economic relief and help solve the country's economic woes.
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The bank's structure and functions
The Second Bank of the United States was established in 1816, five years after the charter for the First Bank of the United States expired. The Second Bank was headquartered in Philadelphia and had offices in 29 other major cities across the country. It was designed by William Strickland in the Greek Revival style. The Second Bank was a national bank with a 20-year charter and a capitalization of $35 million, with 20% of its capital owned by the federal government and the remaining 80% held by four thousand private investors.
The Second Bank was established primarily to address the formidable debt incurred during the War of 1812 and to curb inflation caused by the increasing number of notes issued by private banks. It was also meant to restore a stable currency and regulate public credit issued by private banking institutions. The Bank acted as a fiscal agent for the federal government, handling all its fiscal transactions, including holding deposits, making payments, and issuing and redeeming banknotes. It also kept state banks' issuance of notes in check, functioning as an early bank regulator.
The Second Bank did not set monetary policy, regulate private banks, hold their excess reserves, or act as a lender of last resort. It was not structured to serve the functions of a modern central bank. The Bank's management was initially poor, nearly causing its collapse within a year and a half of its opening. However, under the leadership of Langdon Cheves and his successor Nicholas Biddle, the Second Bank operated effectively.
The Second Bank faced opposition from President Andrew Jackson, who believed it was a threat to the republic due to its economic power and concentration of power in the hands of a few private citizens. Jackson also distrusted the Bank's use of paper notes and credit, arguing that only gold or silver coins should be used for transactions. Despite the Supreme Court affirming the Bank's constitutionality in 1819, Jackson vetoed Congress's 1832 recharter, and the Bank ceased to function in 1836.
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Public perception of the bank
Public perception of the Second Bank of the United States was generally positive initially, with many believing that it would provide relief for the country's ailing economy and help pay off war debts. In 1814, Congress received a petition signed by 150 businessmen from New York City, urging the legislative body to create a second national bank. The bank was also supported by financiers John Jacob Astor, David Parish, Stephen Girard, and Jacob Barker, who believed that a national bank would restore a stable currency and avoid inflation.
However, the Second Bank faced strong opposition from local private banks, who believed that the bank's policies yoked their lending strategies to the fiscal operations of the national government, requiring them to maintain adequate gold and silver reserves to meet their debt obligations. The proliferation of private-sector banking institutions meant that the Second Bank faced significant opposition during the Jackson administration.
Public opinion began to turn against the bank during the presidency of Nicholas Biddle, who was accused of mismanagement and favouritism in the approval of loans. Biddle refused to accept any criticism of the bank's operations, and his actions subjected the bank to public criticism. Jackson saw his 1832 win as a validation of anti-bank sentiment and ordered that federal deposits be removed from the Second National Bank and put into state banks.
The bank also faced opposition from Old Republicans, who characterised the Second Bank as constitutionally illegitimate and a direct threat to Jeffersonian agrarianism, state sovereignty, and the institution of slavery. They believed that the bank put too much power in the hands of too few private citizens, and that it lacked effective regulation, making it a danger to American liberties.
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Opposition to the bank
Opposition to the Second Bank of the United States came from several fronts, including Old Republicans, private banks, and Jacksonian Democrats.
Old Republicans, represented by John Taylor of Caroline and John Randolph of Roanoke, characterized the Second Bank as constitutionally illegitimate, stating that it threatened Jeffersonian agrarianism, state sovereignty, and the institution of slavery. Taylor expressed this sentiment in his statement, "...if Congress could incorporate a bank, it might emancipate a slave." Private banks, which had scuttled the rechartering of the First Bank in 1811, also opposed the Second Bank, as they were hostile to its regulatory effects, which required them to maintain adequate gold and silver reserves to meet their debt obligations to the U.S. Treasury.
The Jacksonian Democrats, led by President Andrew Jackson, played a significant role in undermining the Second Bank during his administration (1829-1837). Jackson opposed the Bank on the grounds that it failed to produce a stable national currency and lacked constitutional legitimacy. He viewed it as a corrupt institution, dangerous to American liberties, and believed it put too much power in the hands of private citizens, which could be detrimental to the government. Jackson's victory in the 1832 elections further solidified anti-bank sentiment, and he subsequently ordered the removal of federal deposits from the Second National Bank, transferring them to state banks.
The Second Bank's reaction to a financial crisis, which resulted in a protracted recession and mass unemployment, also raised doubts among the American public about the efficacy of paper money and the interests served by a national system of finance. The proliferation of private-sector banking institutions, from 31 banks in 1801 to 788 in 1837, meant that the Second Bank faced strong opposition from this sector during the Jackson administration.
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The bank's impact on the country's economy
The Second Bank of the United States was established in 1816, in Philadelphia, Pennsylvania, as a successor to the First Bank of the United States. The Second Bank was a national bank, comparable to the Bank of England and the Bank of France, but with a key difference in that the US government owned 20% of its capital. The Second Bank was expected to provide relief for the country's ailing economy and help pay off its war debt.
The Second Bank was the only bank in the US that was authorized to have branches in multiple states and lend money to the federal government. It handled all fiscal transactions for the US government and was accountable to Congress and the US Treasury. The bank's notes were backed by substantial gold reserves, which helped provide the country with a more stable national currency. The bank's extensive branch network aided the country's westward expansion and economic growth by providing credit to businesses and farmers. These loans helped finance the production of goods and agricultural output, as well as the shipment of these goods to domestic and foreign markets.
The Second Bank also acted as a check on state banks, ensuring that they maintained adequate gold and silver reserves to meet their debt obligations to the US Treasury. This mechanism prevented over-speculation and the risk of a national financial crisis. The bank also helped regulate credit by automatically restricting the overextension of credit by state banks, thus protecting the economy from inflation. Conversely, in times of panic or deflation, the bank could ease the pressure and increase the supply of money and credit in the economy.
Despite its positive impact on the economy, the Second Bank faced strong opposition, particularly from private banks, which resented the central banking responsibilities of the Second Bank and complained of oppression. There were also concerns about the lack of effective regulation of the bank, and it was criticised for concentrating too much power in the hands of a few private citizens.
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Frequently asked questions
The constitutionality of the Second Bank of the US was a highly debated topic. While the Supreme Court, in McCulloch v. Maryland (1819), ruled that it was constitutional, there were differing opinions. President Andrew Jackson and his administration believed it lacked constitutional legitimacy and challenged its charter.
The McCulloch v. Maryland case established that the "Necessary and Proper" Clause of the Constitution gives the federal government certain implied powers not explicitly stated in the Constitution. It also affirmed that the federal government is supreme over the states.
Opponents of the Second Bank, including President Jackson, argued that it failed to produce a stable national currency and that it was a threat to states' rights and individual liberty. They also believed it gave too much power to a few private citizens and lacked effective regulation.
The creation of the Second Bank was supported by financiers John Jacob Astor, David Parish, Stephen Girard, and Jacob Barker, as well as Alexander Dallas and Rep. John C. Calhoun. They believed it would restore a stable currency and help the country's ailing economy.
The debate over the Second Bank's constitutionality, also known as the "Bank War," polarized the nation and defined the 1832 presidential election. Jackson's veto of the Bank's charter and removal of federal deposits contributed to the Panic of 1837 and had mixed economic consequences.
