Eighth Grade Social Studies: The National Bank War & The Panic of 1837
Of all the ferocious battles that defined Andrew Jackson's presidency, none was more consequential, dramatic, or economically disruptive than his war against the Second Bank of the United States. To Jackson and his populist followers, the National Bank was a monstrous, unconstitutional financial monopoly—a "Monster" that corrupted elections, enriched wealthy eastern and foreign aristocrats, and held the economic life of the common people in an iron grip. Under the leadership of its aristocratic president, Nicholas Biddle, the Bank possessed immense financial power. Jackson's historic decision to veto the Bank's re-charter in 1832 and unilaterally withdraw federal deposits launched the "Bank War," permanently dismantling the nation's central banking system, establishing the modern Whig Party, and triggering a catastrophic financial depression known as the Panic of 1837.
The Monster Institution: The Second Bank of the United States
Chartered by Congress in 1816 for a twenty-year term, the Second Bank of the United States was a massive private-public corporation headquartered in a majestic Greek Revival marble temple on Chestnut Street in Philadelphia.
The Power of the Second Bank of the United States
[ Nicholas Biddle: Bank President ]
Held Unchecked Private Control Over the Entire Nation's Economy!
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[ Federal Depository ] [ National Currency ] [ Regulatory Control ]
Held all federal tax revenues Issued uniform paper notes Compelled private state banks
($10-$12 Million in cash) backed by gold and silver; to redeem paper money in hard
without paying interest. accepted everywhere. specie; halted over-speculation.
The Bank was capitalized at $35 million—an astronomical sum for the era. The federal government owned twenty percent of the stock and appointed five of its twenty-five directors; private investors, including wealthy northern financiers and British aristocrats, owned the remaining eighty percent.
Under its brilliant, patrician president, Nicholas Biddle, the Bank functioned as the nation's central bank. It held all federal tax deposits, loaned millions to commercial enterprises, facilitated international trade, and issued stable paper banknotes that circulated as the nation's primary currency.
Crucially, the National Bank acted as the regulatory governor of the economy. When private state banks recklessly printed millions of dollars in paper banknotes without enough gold or silver (specie) to back them, Biddle's bank gathered up those state banknotes and presented them back to the state banks, demanding immediate payment in hard gold or silver coin. This forced state banks to maintain honest reserves, preventing run-away inflation and curbing dangerous land speculation.
Andrew Jackson's Populist Hatred of the Bank
Andrew Jackson's opposition to the Bank was visceral, personal, and philosophical:
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| Andrew Jackson's Core Indictments of the Bank |
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| Unconstitutional | Citing Strict Construction, Jackson argued |
| Institution | Congress had no explicit power to charter a |
| | private corporation or commercial bank. |
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| Corrupt Financial | The Bank held an undemocratic monopoly on |
| Monopoly | federal deposits, enriching private elite |
| | stockholders at public expense. |
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| Political Weapon | Biddle loaned cash to congressmen and |
| and Subversion | newspapers to buy favorable votes and press.|
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| Hard Money Bias | Jackson distrusted all paper money; favored |
| (Specie) | hard gold and silver coin ("specie"). |
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First, personal trauma: In the 1790s, Jackson had been financially ruined when paper notes he accepted in a western land deal became worthless, leaving him deeply in debt. For the rest of his life, Jackson held an unshakeable distrust of all paper money, viewing gold and silver coin ("specie") as the only honest, constitutional currency.
Second, constitutional strict construction: Jackson agreed with Thomas Jefferson that the Constitution granted Congress zero enumerated power to charter a bank or grant exclusive corporate monopolies.
Third, populist class antagonism: Jackson viewed the Bank as a dangerous, corrupting concentration of aristocratic power. Biddle's bank held a complete monopoly on federal deposits, paying zero interest to the government, while its private stockholders reaped massive dividends. Biddle routinely made below-market personal loans to congressmen, senators (such as Daniel Webster, who was on the Bank's legal payroll), and newspaper editors to secure favorable legislation. Jackson viewed Biddle as an unelected financial monarch who held the sovereign government in his pocket.
The Re-Charter Battle and the Famous Veto (1832)
The Bank's twenty-year charter was not scheduled to expire until 1836. However, in the election year of 1832, Senator Henry Clay and Nicholas Biddle engineered a bold political trap to defeat Jackson.
Henry Clay's Calculated Bank Trap (1832)
Clay Convinces Biddle to Apply for Early Re-Charter in 1832 (Election Year!)
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Congress Passes the Bank Re-Charter Bill in Summer 1832
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JACKSON FACES A POLITICAL DILEMMA:
* If Jackson SIGNS the bill ---> He betrays his core populist principles.
* If Jackson VETOES the bill ---> Clay assumes northern/eastern voters will be
outraged by economic disruption and defeat Jackson in the 1832 election!
Clay believed that if Jackson vetoed the Bank bill, the wealthy commercial voters of Pennsylvania, New York, and New England would rise up and drive Jackson from the White House, electing Clay president.
Congress passed the Bank Re-Charter Bill in July 1832. Lying sick in bed in the White House, Andrew Jackson took the bill as a personal declaration of war. He told his close friend Martin Van Buren: "The Bank, Mr. Van Buren, is trying to kill me, but I will kill it!"
The Bank Veto Message: A Populist Manifesto
On July 10, 1832, President Jackson issued his historic Bank Veto. Drafted with the assistance of Amos Kendall, the veto message was not a dry legal brief; it was a thunderous populist manifesto that revolutionized the presidential veto power.
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| Andrew Jackson's Landmark Bank Veto (July 10, 1832) |
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| "It is to be regretted that the rich and powerful too often |
| bend the acts of government to their selfish purposes... |
| Many of our rich men have not been content with equal |
| protection and equal benefits, but have besought us to make |
| them richer by act of Congress... When the laws undertake to... |
| grant titles, gratuities, and exclusive privileges, to make the |
| rich richer and the potent more powerful, the humble members |
| of society--the farmers, mechanics, and laborers... have a |
| right to complain of the injustice of their Government." |
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Prior to Jackson, previous presidents had used the veto power only if they believed a bill was unconstitutional (having vetoed only ten bills in forty years). Jackson vetoed the Bank bill on political, social, and economic grounds, establishing the precedent that a president could veto any bill he simply judged to be bad public policy.
Jackson asserted that the Supreme Court's ruling in McCulloch v. Maryland (1819) was not binding on the President: "The Congress, the Executive, and the Court must each for itself be guided by its own opinion of the Constitution."
Most powerfully, Jackson framed the battle as a class struggle between the common working people ("the farmers, mechanics, and laborers") and a wealthy corporate elite that used government charters to extract wealth from the poor.
The Election of 1832: Jackson's Landslide
Henry Clay and Nicholas Biddle were thrilled by the veto message, viewing it as the deranged raving of a demagogue. Biddle spent over $100,000 of Bank money printing thirty thousand copies of Jackson's veto message, distributing them across the country to demonstrate Jackson's radicalism.
The strategy backfired spectacularly. The common people read the veto message and saw Andrew Jackson as their heroic champion standing alone against a corrupt banking oligarchy.
In the November 1832 election, Jackson crushed Henry Clay in an overwhelming landslide: Jackson won 219 electoral votes to Clay's forty-nine, carrying the popular vote by eighteen percentage points. Jackson viewed his reelection as a divine mandate from the sovereign people to completely destroy the Bank of the United States.
The Removal of the Deposits and "Pet Banks" (1833)
Jackson was not content to let the Bank die a natural death when its charter expired in 1836. He was convinced that Biddle would use his billions to buy up the next Congress and override a future veto. Jackson decided to execute a mortal blow: he would immediately withdraw all federal deposits from the Bank.
The Dismantling of the Bank (1833)
President Jackson Orders Federal Deposits Removed from National Bank
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Two Treasury Secretaries (McLane & Duane) Refuse; Jackson FIRES Them Both!
Appoints Loyal Ally Roger B. Taney as Treasury Secretary.
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Taney Siphons $10 Million in Federal Revenues into State "Pet Banks"
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Nicholas Biddle Retaliates: Calls in Loans and Restricts Credit
(Creates an Artificial Financial Panic to Force Congress to Restore the Bank!)
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JACKSON STANDS FIRM: "Biddle cannot intimidate me! The Monster Must Die!"
The law stipulated that only the Secretary of the Treasury held the legal authority to remove federal deposits. When Treasury Secretary Louis McLane refused to comply, Jackson transferred him to Secretary of State. Jackson appointed William J. Duane, but when Duane also refused to remove the funds on legal grounds, Jackson fired him.
Jackson then appointed his loyal Attorney General, Roger B. Taney (future Chief Justice of the Supreme Court). Taney complied immediately: beginning in the autumn of 1833, Taney stopped depositing federal tax revenues into the Bank of the United States, drawing down existing balances to pay federal expenses while depositing all newly collected customs revenues into selected state banks—politically connected state-chartered institutions dubbed by critics Jackson's "Pet Banks."
Biddle's Retaliation: The Artificial Panic
Nicholas Biddle did not surrender quietly. In a desperate bid to force Congress to re-charter the Bank, Biddle deliberately manufactured an economic contraction in the winter of 1833-1834.
Biddle abruptly called in millions of dollars in outstanding loans, restricted commercial credit, and raised interest rates, declaring: "This worthy President thinks that because he has scalped Indians and imprisoned Judges, he is to have his way with the Bank. He is mistaken."
Biddle's credit squeeze triggered a severe winter recession: businesses went bankrupt, factories closed, and unemployment soared. Business delegations traveled to Washington to beg Jackson for relief. Jackson pointed out the door, shouting: "Go to Biddle! He has the money! Biddle is the monster that is oppressing you!"
Jackson's political instincts were vindicated. When business leaders discovered that Biddle was deliberately hoarding cash to blackmail the government, public opinion turned decisively against the Bank. The House of Representatives voted against re-chartering, and the Second Bank of the United States officially collapsed when its charter expired in 1836.
The Birth of the Whig Party
Jackson's aggressive expansion of presidential power during the Bank War—firing cabinet secretaries without congressional approval, vetoing legislation on policy grounds, and defying the Supreme Court—alarmed his political opponents.
The Rise of the Whig Coalition (1834)
Opposition to "King Andrew the First" Unites Disparate Political Factions:
* National Republicans (Henry Clay & John Quincy Adams: American System).
* Southern States' Rights Advocates (John C. Calhoun: Angered by Force Bill).
* Northern Merchants, Bankers, and Industrialists (Defenders of Sound Currency).
* Anti-Masonic Party Members (Distrust of Secret Societies & Aristocracy).
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Adopt the Name "WHIGS" (Borrowing from 18th-century British Patriots
Who Fought Against the Tyranny of King George III!)
In 1834, Henry Clay, Daniel Webster, and John C. Calhoun formed a new political party: the Whig Party. They deliberately chose the historic name "Whigs" to recall the eighteenth-century British and American patriots who had resisted the tyranny of King George III.
Whig political cartoons depicted Andrew Jackson as "King Andrew the First," dressed in regal royal robes, wearing a monarchical crown, holding a presidential veto in one hand and trampling the United States Constitution under his feet.
The Whigs championed Henry Clay's American System (protective tariffs, national banking, internal improvements), legislative supremacy over the executive, and modern commercial industrialization. The emergence of the Whigs established the Second Party System (Democrats vs. Whigs), which dominated American politics for the next two decades.
Economic Catastrophe: The Specie Circular and the Panic of 1837
While Jackson won the political battle against the Bank, his destruction of the central banking system unleashed disastrous economic consequences.
The Road to the Panic of 1837
Destruction of National Bank (1833) ---> Federal Funds Funneled into State "Pet Banks"
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State Banks Multiply (Hundreds Formed); Print Massive Flood of Unbacked Paper Money!
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Wild Wildcat Speculation in Western Public Lands (Purchased with Worthless Paper Notes)
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Jackson Panics: Issues THE SPECIE CIRCULAR (July 1836)
(Requires All Federal Public Lands to Be Paid for ONLY in Hard Gold or Silver Coin!)
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Speculators Rush to State Banks Demanding Gold ---> Banks Run Out of Gold and COLLAPSE!
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THE PANIC OF 1837: The Worst Economic Depression of the 19th Century!
Without Biddle's national bank to regulate them, hundreds of unregulated private state banks (known as "wildcat banks") multiplied across the frontier. These wildcat banks printed millions of dollars in unbacked paper currency, loaning money recklessly to western land speculators. Between 1834 and 1836, federal public land sales exploded from four million acres to twenty million acres, fueled by a speculative bubble.
Alarmed by this wild paper inflation, President Jackson issued an executive order in July 1836 known as the Specie Circular. The decree mandated that the federal government would accept only hard gold and silver coin (specie)—no paper banknotes—for the purchase of federal public lands.
The Specie Circular pricked the speculative bubble with devastating force. Land buyers rushed to frontier state banks with stacks of paper banknotes, demanding immediate conversion into gold and silver. The state banks did not have enough gold to cover their paper notes.
In May 1837, just weeks after Jackson left office and his loyal successor Martin Van Buren was inaugurated, the financial system collapsed in the catastrophic Panic of 1837:
Banks across the nation suspended specie payments and slammed their doors shut. Over eight hundred banks failed; commercial businesses collapsed; construction on canals and railroads halted; and hundreds of thousands of factory workers in northern cities were thrown into unemployment. In New York, bread riots broke out as starving families stormed flour warehouses. The depression dragged on for five agonizing years.
Van Buren, committed to Jacksonian laissez-faire ideology, refused to intervene to rescue the economy, earning him the mocking nickname "Martin Van Ruin." In 1840, voters blamed the Democrats for the economic depression and swept the Whig presidential ticket of William Henry Harrison into the White House.
Chapter Exercises
Exercise 1: Analyze the economic and regulatory functions of the Second Bank of the United States under Nicholas Biddle. Why did Andrew Jackson view the Bank as an unconstitutional and corrupt "Monster"?
Exercise 2: Explain the political calculation made by Henry Clay and Nicholas Biddle in seeking an early re-charter of the National Bank in 1832. How did Jackson's Bank Veto revolutionize the presidential veto power, and how did it influence the election of 1832?
Exercise 3: Trace the sequence of events following the removal of federal deposits in 1833 to the Panic of 1837. How did Jackson's "Pet Banks" and the Specie Circular contribute to the worst economic depression of the nineteenth century?
Solutions and Explanations
Solution 1: Under Nicholas Biddle, the Second Bank of the United States performed indispensable central banking functions: it served as the federal government's depository for tax revenues, issued stable paper currency accepted nationwide, made loans to businesses, and crucially, regulated private state banks by demanding they redeem their paper notes in hard gold or silver coin, curbing inflation. Andrew Jackson viewed the Bank as a corrupt "Monster" because it was an unelected private monopoly endowed with exclusive public privileges that paid no interest on government funds, enriching wealthy northern and foreign stockholders. Jackson held a personal distrust of all paper money, favored hard specie, and argued under strict construction that the Constitution granted Congress no power to charter a corporation. Most dangerously, Jackson viewed the Bank as a political menace that used below-market loans to bribe congressmen and editors, threatening democratic self-government.
Solution 2: In 1832, Senator Henry Clay and Nicholas Biddle engineered an early application for the Bank's re-charter four years before its expiration to create an election-year trap for Jackson. Clay calculated that if Jackson signed the bill, he would alienate his populist base; if he vetoed it, the wealthy commercial voters of Pennsylvania and the North would defeat Jackson in November. Jackson seized the challenge, issuing his famous Bank Veto on July 10, 1832. Jackson transformed the veto power: previously, presidents vetoed bills only if they judged them unconstitutional; Jackson vetoed the Bank bill on political, social, and economic grounds, establishing the president as a legislative actor who could reject any policy he deemed contrary to the public good. Framing the battle as a class struggle between the common working people and a wealthy corporate elite, Jackson's veto message resonated with voters, propelling him to a landslide victory over Clay with 219 electoral votes.
Solution 3: Following his 1832 reelection, Jackson systematically dismantled the National Bank by firing two treasury secretaries until finding Roger B. Taney, who siphoned federal revenues into politically connected state "Pet Banks." Without the central bank's regulatory oversight, hundreds of state "wildcat banks" sprang up, printing massive floods of unbacked paper currency to finance wild western land speculation. Alarmed by this runaway inflation, Jackson issued the Specie Circular in July 1836, mandating that federal lands be paid for exclusively in hard gold and silver coin. This suddenly burst the bubble: speculators rushed to state banks to redeem paper notes for gold; banks ran out of specie and collapsed; and in May 1837, the Panic of 1837 erupted. Over eight hundred banks failed, businesses shuttered, unemployment swept northern cities, and a devastating five-year depression began that destroyed the presidency of Martin Van Buren.