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Jacksonian America: Bank of the United States and the Panic of 1837

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  • 0:05 Growing Power of the Bank
  • 2:32 Testing Jackson's Resolve
  • 4:58 Panic of 1837
  • 6:26 Lesson Summary
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Lesson Transcript
Instructor: Steven Shirley
In this lesson, we will discuss President Andrew Jackson's economic policies, including his determination to close the Bank of the United States and the financial panic of 1837.

Growing Power of the Bank

Although the Supreme Court case of McCulloch v. Madison had established the legality of the Bank of the United States, the bank itself came under close scrutiny in the early years of Andrew Jackson's first administration.

For its part, the bank felt it provided a service to the American people and the young nation as a whole. Led by Nicholas Biddle, the bank served as a rudimentary central bank of the United States. Privately owned to be sure, but due to its size and wealth, it could effectively regulate the availability of credit throughout the nation by controlling the lending policies of state and other small banks. At the same time, banks issued paper notes, and their only concern was if the owner of these notes wished to cash them in, so to speak, and retrieve hard currency. For you see in those days, money was directly convertible into gold or silver, so the bank had to have enough of both on hand to handle customer demands. Since most of the paper notes eventually made their way to the Bank of the United States, the bank could effectively pressure smaller banks to keep their lending policies in check.

Nicholas Biddle led the Bank of the United States
Nicholas Biddle

Biddle's bank oversight served to reign in excessive borrowing and lending policies - policies that were all too common in Jacksonian America when the economy was booming and speculation was the rule of the day. People were looking for quick investments, quick cash and quick returns, and for much of Jackson's years in office, they were succeeding. But the Bank of the United States had enemies on many fronts. There were those who distrusted paper currency on the whole, no matter which bank was issuing it, feeling anything other than gold and silver (known as hard currency) was a disaster waiting to happen. And some local bankers felt Biddle was too restrictive on their own lending policies, hurting their business. New York bankers also did not like or trust a Philadelphia-based bank and felt it unfair that New York City did not have the nation's central bank in its own city limits. They would ask themselves, 'Why turn over such immense profits to Biddle?' Finally, there were those who simply distrusted the monopoly the bank had. One institution having so much power, invested in the hands of one individual, just seemed like too much.

Testing Jackson's Resolve

The situation would come to a head during the election of 1832. Jackson, still very popular among the constituencies that had elected him in 1828, faced his old foe Henry Clay in the general election. Clay rallied anti-Jackson forces and won the favor of Biddle and the Bank of the United States. Both realized they needed each other in order to defeat Jackson. Jackson also realized that the bank and its new allies were seeking to cast him out of office. A showdown was inevitable. Clay and his allies believed that the bank was too important to the United States and that voters would realize this too. What is more, Congress would seek to force Jackson to sign the bank's bill of re-charter in the months prior to the election - a move that was unnecessary since the first charter did not expire until 1836. Unnecessary, but it was politically expedient. Should Jackson fail to sign the bill, Clay and his allies believed it would clearly show how out of touch Jackson was to the interests of the country and to the realities of finance.

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