The Bank of the United States and the American Economy: (Contributions in Economics and Economic History)
Format: PDF / Kindle (mobi) / ePub
An account of the history, structure, and operation of the First and Second Banks of the United States, this study examines how the banks performed as national and central institutions, and what happened to the economy when the charter of the Second Bank was allowed to expire in 1836. Historians have paid little recent attention to the early history of central banking in the United States, and many Americans believe that the Federal Reserve, created in 1913, was our first central bank. The economic crisis during the American Revolution actually led to the founding of a national bank, called the Bank of North America, during the period of Confederation. Although it became a private bank before the Constitution was ratified in 1788, it proved to be such a success that in 1791 Alexander Hamilton, the first Secretary of the Treasury, was able to convince President Washington that a similar bank should be established.
While the First Bank of the United States performed well during its tenure, its charter was allowed to lapse in 1811. A Second Bank of the United States was created five years later in 1816, and it prospered under the leadership of its third president, Nicholas Biddle, from 1823 to 1830, when central banking was practiced. This success ended with the 1828 election of Andrew Jackson, who refused to recharter the bank and withdrew the government's funds in 1833. Severely weakened, the Bank continued, but its charter finally expired in 1836, much to Biddle's dismay.
in the Second Bank's vaults. As it turned out, the Second Bank received neither the specie nor the government stock it was owed, for if the stock could be paid for using specie notes as specie, it was much simpler to use them to pay the entire subscription rather than the scarce specie or government stock.46 What the Second Bank did was to put itself at a disadvantage before it began to operate. The shareholders were supposed to provide $7 million in coin and $21 million in government securities;
accounting for only $4 million or six percent of total funding.23 The Bank ofthe United States 6 Agriculture and Industry The agricultural community in the New England and in the Middle Atlantic states benefitedfromthe war. Most of the food crops, such as corn, wheat, barley and oats, were in great demand by the Continental army, the French troops, and the fleet. The increased demand for most farm commodities resulted in higher prices and inflated land values. The state of Connecticut was the
allowing other officers of the Bank to become signers. However, due to politics, the Congress refused to amend the Bank charter for this purpose. Thus, Biddle created the branch drafts as a remedy to the shortage of banknotes. The Second Bank president did this only after he consulted with Henry Clay on the legality ofthe drafts. Clay assured him that because the issue of checks upon the Bank by its branches was ordinary banking operations, he saw no problem with the drafts.72 Biddle authorized
meant confronting the president. He believed that if the president vetoed the bill, congressional candidates up for reelection would have to take a position on the issue, and Biddle thought that most Americans supported the Bank, and that they would elect enough members to the Congress to override the veto.93 Biddle was also encouraged in his opinion by John Quincy Adams, Daniel Webster, and especially Henry Clay, Jackson's opponent, who desperately needed an issue against the popular president.
abroad. Finally, on May 10, 1837, all specie payments were suspended in the United States.28 After the suspension of specie payment, the economy experienced some financial relief when stock prices rose. However, there was little change in internal trade, which continued to decline, as southern and western merchants could not do business in the eastern commercial centers, due to the reluctance to accept their banknotes and drafts. The recession continued, but there was at least a decline in