Second bank of the United States - History

Second bank of the United States - History

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Before long, even legislators who had opposed the First Bank had to admit that the nation needed a national bank. State banking interests, Virginia farmers and some Federalists continued their fight against the Bank. It took six proposals and two years of debate, but, in 1816, Congress finally passed a bill establishing the Second Bank of the U.S. Like the First Bank of the United States, it was chartered for 20 years, and had one-fifth of its stock held by the government.

The Second Bank of the United States: Ordovician Fossils in 19th Century Flooring

The Second Bank of the United States in Philadelphia, Pennsylvania.

Millions of visitors come to Independence National Historical Park each year seeking to learn about the founding of the United States. What they do not expect to find are fossils that are 488–443 million years old in a 19th century bank. The Second Bank of the United States was built in 1819–1824, in the heart of Old City Philadelphia very near to Independence Hall. This Greek Revival building housed the Federal Bank until 1836 when the bank’s charter expired. In 1845, the building was converted to a U.S. Custom House. In the early 1860s, the building underwent a vast renovation to make more offices. During this time a new tile floor was laid. Once the National Park Service took ownership of the building in 1939, years of stories were told about the strange markings in the floor of the Second Bank. In 2018, research began on the 1860s flooring materials of the building to try to determine what kind of fossils were in the flooring and where the tile originated from.

Interior Banking Room showing the “Radio Black Marble” tiles (so-called because of their use at Radio City Music Hall).

The main banking room floor of the Second Bank features a tessellated pattern of black and white tiles that, for a long time, were thought to be marble. Based on comparisons with other nineteenth century structures, north-western Vermont’s Isle La Motte Fisk Quarry (Crown Point Formation) is the most likely source of the black fossiliferous limestone used for floor tiles in the Second Bank. This is confirmed by the species of fossils found in the Bank floor. What is now modern-day Vermont was covered by the Chazy Reef, which formed beneath a warm tropical sea filled with a menagerie of invertebrates during the Ordovician Period (488–443 mya). The Fisk Quarry was world-famous for its black stone, a popular and durable building material used in many structures such as Radio City Music Hall, the Ohio State House, Smithsonian Castle, and the U.S. Capitol building. Today the quarry is part of Chazy Fossil Reef National Natural Landmark.

Second Bank of the United States

The Second Bank of the United States, located in Philadelphia, Pennsylvania, was the second federally authorized Hamiltonian National Bank in the United States during its 20-year charter from February 1816 to January 1836.

A private corporation with public duties, the bank handled all fiscal transactions for the U.S. Government, and was accountable to Congress and the U.S. Treasury. Twenty percent of its capital was owned by the federal government, the Bank's single largest stockholder. Four thousand private investors held 80% of the Bank's capital, including one thousand Europeans. The bulk of the stocks were held by a few hundred wealthy Americans. In its time, the institution was the largest monied corporation in the world.

The essential function of the Bank was to regulate the public credit issued by private banking institutions through the fiscal duties it performed for the U.S. Treasury, and to establish a sound and stable national currency. The federal deposits endowed the BUS with its regulatory capacity.

Modeled on Alexander Hamilton's First Bank of the United States, the Second Bank was chartered by President James Madison in 1816 and began operations at its main branch in Philadelphia on January 7, 1817, managing twenty-five branch offices nationwide by 1832.

The efforts to renew the Bank's charter put the institution at the center of the general election of 1832, in which the Bank's president Nicholas Biddle and pro-Bank National Republicans led by Henry Clay clashed with the "hard-money" Andrew Jackson administration and eastern banking interests in the Bank War. Failing to secure recharter, the Second Bank of the United States became a private corporation in 1836, and underwent liquidation in 1841.

The Second Bank of the United States: A Chapter in the History of Central Banking

This resource outlines the origins and operations of the second Bank of the United States, the nation’s second attempt at central banking.

December 24, 1814. On that day, representatives of the U.S. government, meeting in Belgium, signed the Treaty of Ghent, which ended hostilities between the U.S. and Great Britain in the War of 1812. However, given the lack of swift communications in those days, it would be several weeks before news of the treaty reached U.S. shores.

In the meantime, unaware that England and her former colonies were once again at peace, Major General Andrew Jackson led his troops against the British army just outside of New Orleans in January 1815. Jackson and his men defeated the British, and the Battle of New Orleans made the military man a national hero. Later, as President of the United States, the general would figure prominently in another battle: the one over the second Bank of the United States.

Andrew Jackson and the Second Bank of the United States

Even though President Andrew Jackson’s announcement that he was the embodiment of the American people was populist, demagogic, authoritarian, and absolutely in violation of the spirit of the U.S. Constitution, his views on the Second Bank of the United States most certainly embodied the views of the average American.

By the end of 1819, so many banks, persons, and businesses had declared bankruptcy that each defaulted to ownership by the notorious Second Bank of the United States (SUSB), thus making the SUSB one of the largest and most important property owners in the early republic. Many elites benefitted from its seemingly endless largess, but most Americans despised it as a “monster.” Not only did it seem to own everything in sight (and beyond!), but it also had been responsible for the inflation and sudden deflation that had caused the Panic/Depression of 1819. Its first president, William Jones, had been corrupt, and its second, Langdon Cheves, more faithful and steady. Its third president, Nicholas Biddle, came from an elite Philadelphia family, and his elitism caused many Americans to shudder, who saw him, even if personally honest and virtuous, as somehow not quite American. Andrew Jackson referred to Biddle, for example and not without popular support, as a “humbugging aristocratic intellectual.”

When it was created under President James Madison in 1816, the SUSB had been given a twenty-year life span. Knowing that a political fight over the rechartering of the Bank might be a nightmare in 1836, Biddle and his allies proposed rechartering four years early, in 1832. Even though each house of Congress passed the rechartering, Andrew Jackson vetoed the bill. Most members of Congress had benefited so greatly from the SUSB that they had failed to understand they were directly opposing the sentiments and the will of the average American.

And, to be certain, the average American of 1832 was no longer the average American of 1816. In 1816, most Americans had still resided in the original land, hugging the coast of the Atlantic. Andrew Jackson’s victories over the British and the Indians, the immense procreative growth of healthy, average Americans, and the creation of the Erie Canal had decidedly moved American population to the West—that is, to the Great Lakes. Far more confident in their own understandings of the country, the average American had grown toward community self-reliance and against government-business alliances. Even though President Jackson’s announcement that he was the embodiment of the American people was populist, demagogic, authoritarian, and absolutely in violation of the spirit of the U.S. Constitution, his views on the SUSB most certainly embodied the views of the average American.

As such, Andrew Jackson’s veto message is well worth repeating at length. Even in Jackson’s unconstitutional impropriety and madness, there’s an element of honest genius.

There are necessary evils in government. Its evils exist only as abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. . . . Experience should teach us wisdom. Most of the difficulties our Government now encounters and most of the dangers which impend over our Union have sprung from an abandonment of the legitimate objects of Government. . . . 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.

Then, Jackson explains why the SUSB should never have been given such powers.

The present corporate body, denominated the president, directors, and company of the Bank of the United States, will have existed at the time this act is intended to take effect twenty years. It enjoys an exclusive privilege of banking under the authority of the General Government, a monopoly of its favor and support, and, as a necessary consequence, almost a monopoly of the a foreign and domestic exchange. The powers, privileges, and favors bestowed upon it in the original charter, by increasing the value of the stock far above its par value, operated as a gratuity of many millions to the stockholders.

From the beginning, it was an elite institution established not for the common good, but for the benefit of the elites.

It is not conceivable how the present stockholders can have any claim to the special favor of the Government. The present corporation has enjoyed its monopoly during the period stipulated in the original contract. If we must have such a corporation, why should not the Government sell out the whole stock and thus secure to the people the full market value of the privileges granted? Why should not Congress create and sell twenty-eight millions of stock, incorporating the purchasers with all the powers and privileges secured in this act and putting the premium upon sales into the Treasury?

The SUSB, Jackson well understood, was not only in violation of the republican spirit of America, it was threatening to all liberties in America.

Is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country? The president of the bank has told us that most of the State banks exist by its forbearance. Should its influence become concentered, as it may under the operation of such an act as this, in the hands of a self-elected directory whose interests are identified with those of the foreign stockholders, will there not be cause to tremble for the purity of our elections in peace and for the independence of our country in war? Their power would be great whenever they might choose to exert it but if this monopoly were regularly renewed every fifteen or twenty years on terms proposed by themselves, they might seldom in peace put forth their strength to influence elections or control the affairs of the nation. But if any private citizen or public functionary should interpose to curtail its powers or prevent a renewal of its privileges, it cannot be doubted that he would be made to feel its influence.

When pushed, Jackson also admitted that his views (he was a devout Presbyterian) were, to no small degree, theological. “Were all the worshipers of the Golden Calf to memorialise me and Request a Restoration of the Deposits, I would cut off my right hand from my body before I would do such an Act,” he said to Martin Van Buren. “The golden calf may be worshiped by others but, as for myself, I serve the Lord!”

Fearing his political views as well as his unconstitutional pronouncement that he himself embodied the American people as president, the first real political opposition in party form arose in America, the Whig Party. But this is the subject of a much different essay. For now, let’s leave it that Jackson—however unfortunate his wording—did, indeed, represent the views of the majority of Americans in 1832. Much like in 2020, the average American is sick and tired of being told how to live.

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The featured image of the Second Bank of the United States is courtesy of Picryl.

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The First and Second Bank of the United States – A History of Central Banking

The United States’ Federal Reserve is undoubtedly one of the most important economic and financial institutions in the US and like all institutions of such importance it is easy for mainstream discourse to take it for granted. To forget the history of central banking in the US however would entail a dangerous loss of knowledge of an important context that influenced American politics for over a century. The whole question of the creation of a central bank was in fact a major issue of contention between the Founding Fathers since the early days of US independence.

As the first US Secretary of Treasury and the main proponent of the first central banking system, Alexander Hamilton quickly found himself at the centre of this debate. Commissioned by President Washington he produced several reports on the state of the new nation, the first of which, the “First Report on Public Credit” submitted in 1790, carried a projection on the creation of a National Bank.

The proposed functioning of the Bank itself demonstrated the struggle between creating a strong force for economic stability whilst also preventing too heavy a concentration of power in the Federal Government. Most importantly, the Bank would be bound to a 20-year charter after which it required Congress’ approval for renewal of the charter. This Bank would also possess an initial capitalization of $10 million, one fifth of which was held as a loan from the bank to the Government, and to be repaid in installments. The rest of the money supply was intended for private businesses and shareholders from which was also drawn a twenty-five member board of directors.

The financing of this bank, alongside Hamilton’s proposed credit measures, quickly ignited Southern and agrarian opposition. In order to finance the bank and establish viable credit for the new United States, Hamilton suggested the re-appropriation of the remaining states’ war debts to the Federal Government alongside an increase in tax revenues from new tariffs on imported spirits, which would soon be known as the “Whiskey Tax”. Not only were the new taxes extremely unpopular, the transfer of state debts to the central Government meant that many of the southern states which had already paid off their war debts would be effectively double-taxing their citizens when paying off the new Federal debt.

Establishing a new central bank also created one of the first Constitutionality debates in the US government. While the Constitution had limited the role of Congress to regulate weights, measures and to the issuance of minted currency, creating a National Bank was, for Jefferson, Madison and their anti-Federalist supporters, outside the boundaries of constitutional power. Hamilton saw himself forced to apply the now famous Implied Powers argument, declaring that the Constitution upon granting goals and aims for Government, also grants permission to create the means to achieve those same goals. Eventually, Hamilton’s arguments succeeded in persuading President Washington into approving the Bank bill and consequently starting the Bank charter.

However, even after the First Bank of the United States had become a reality, strong opposition remained, finally reaching a climax after Hamilton left his office as Secretary of Treasury. His successor, Oliver Wolcott Jr. was swift in suggesting that the Federal Government sell all its shares of the Bank’s stock as a ready alternative to raising taxes, effectively signalling the beginning of the end for the first Federal controlled Bank. Hamilton was thus unable to prevent the abandonment of the Central Banking system, with the charter being left to reach the end of its 20 year limit in 1811, after which it was sold and transformed into Stephen Girard’s Bank in Philadelphia.

The Second Bank of the United States

The second major chapter in the history of central banking in the US began in the wake of the War of 1812. The decades following independence saw a dramatic rise in the importance of industry and trade in the economy, and the war had an adverse effect on them due in part to unregulated currency, which also increased demands for more security in government issued bonds. Thankfully for proponents of a new central bank this era in the US, now dubbed the “Era of Good Feelings”, was extremely conducive to further development of Federal projects and institutions.

What had been a fairly homogenous opposition to the First Bank of the United States was now divided between the Old and New Republicans, representing most of the Southern and Western states. While the Old Republicans insisted on the Constitutionality arguments that had been put forward by Jefferson during the debates on the First Bank of the US, the New Republicans supported the idea due to increased interdependence between the growing finance industry and the large southern plantations. New opposition did emerge however, from privately owned banks, both chartered and unchartered, that had come to dominate the market in the absence of a regulatory entity.

After some debate but with considerably more ease compared to the First Bank, the Second Bank of the United States was signed into being and afforded a 20 year charter in 1817. Once again, one-fifth of the starting capital for the Bank was owned by the Federal Government, acting as its main shareholder and customer whilst also requiring certain services of the new Bank, most notably the handling of all government transactions and tax payments. The twenty-five board of directors was also in place, with five of those members chosen by the President of the United States contingent on Senate approval.

Its first major challenge was quickly revealed to be restraining private and state-owned banks whose unregulated issuing of bank notes had been fuelling speculative booms. While by itself this posed an already formidable challenge, the Second Bank had also been created with the implied commitment to permitting prevailing laissez-faire policies that allowed credit exchanges between North and Eastern creditors to new Southern and Western debtors. The Bank was largely unsuccessful in controlling these speculative booms which led to the US market crash of 1819.

While the advent of a new crisis provided the Second Bank with an opportunity to demonstrate its economic capacity, its proposed solutions and fiscal policies were largely belated in their application. The first President of the Second Bank officially resigned in 1819, being replaced by Langdon Cheves, who was made responsible in the application of most of those solutions which included a credit contraction that contrasted with a then recovering economy. These belt tightening policies inevitably led to increased unemployment, thus prolonging the following recession, creating further opposition and critics to central banking.

It was during this atmosphere of general distrust and dislike for the central bank, that President James Monroe appointed Nicholas Biddle as the new President of the Second Bank. Biddle proceeded to cautiously and successfully expanding credit alongside a growing US economy. The Bank also profited in public support from the first Supreme Court ruling in its favour, upholding its constitutionality and dissuading many of its more traditional critics from further challenge.

The source of the Second Bank’s demise would eventually arrive during Andrew Jackson’s Presidency in 1829. Despite the general public approval of the Bank, President Jackson attacked the Bank claiming a failure to produce a stable currency alongside traditional constitutional concerns. Despite Congressional investigations and reports defending the Bank’s role in maintaining US currency and precedents for its constitutionality, Jackson was unwavering in his condemnation of the Second Bank as a corrupt corporation. President Jackson’s anti-bank platform carried him through his re-election in 1832, and in 1833 he proceeded to remove all Federal deposits from the Second Bank, moving them into several private and state banks. The Bank charter was thus allowed to expire in 1836 with the corporation itself being liquidated in 1841.

Posted in History | Comments Off on The First and Second Bank of the United States – A History of Central Banking

Profit and duty in the Second Bank of the United States' exchange operations

The Second Bank of the United States (1816–36) faced a potential trade-off between the private profits it was expected to produce for shareholders and the ‘free’ yet costly fiscal services it was mandated to provide to the Federal government during an era of westward expansion and primitive transportation networks. This article shows that the bank's large-scale dealings in domestic and foreign exchange transformed this potential trade-off into a positive synergy between the bank's private and public obligations. The bank was financially successful because it found a market niche – the provision of interregional and international payment services – whose exploitation had the added virtue of reducing the cost to the bank of being the Treasury's fiscal agent.

La Seconde Banque des Etats-Unis (1816-36) aurait pu se trouver dans une situation l'obligeant à choisir entre d'une part les profits escomptés par ses actionnaires, et d'autre part les services fiscaux coûteux qu'elle était chargée d'effectuer gratuitement pour le compte du gouvernement fédéral durant une période d'expansion vers l'ouest et de réseaux de transport encore primitifs. Cet article démontre que les transactions de la banque en matière de paiements, tant à l'intérieur du pays qu'avec l'étranger, ont transformé ce dilemme potentiel en une synergie positive entre les obligations publiques et privées de la banque. La réussite financière de la banque s'explique par sa capacité à une occuper une niche sur le marché – un service de paiements interrégionaux et internationaux – dont l'exploitation avait l'avantage de réduire les coûts engendrés par ses fonctions d'agent fiscal du Trésor.

Die Second Bank of the United States (1816-36) sah sich im Zwiespalt zwischen den privaten Gewinnen, die ihre Aktionäre von ihr erwarteten und den ‘kostenlosen’, aber eben teuren Steuerdiensten, die sie der Bundesregierung in Zeiten der Westbesiedlung und eines nur rudimentären Transportnetzes zu leisten verpflichtet war. Der Aufsatz zeigt, daß es der Bank durch ihre großangelegten Wechselkursgeschäfte in heimischer und ausländischer Währung gelang, ihre Pflichten als Privatbank und öffentliche Bank geschickt zu verbinden. Die Bank war erfolgreich, weil sie eine Marktlücke gefunden hatte – die Bereitstellung interregionaler und internationaler Zahlungsdienste. Die daraus resultierenden Gewinne halfen der Bank die Kosten zu reduzieren, die ihr aus ihrer Rolle als Steuergehilfe der Regierung erwuchsen.

El ‘Second Bank’ de los Estados Unidos (1816-36) se enfrentaba a un ‘trade-off’ entre las ganancias privadas que debía generar para sus accionistas y los servicios fiscales ‘libres de impuestos’ y sin embargo costosos que estaba obligado a proveer según el Gobierno Federal, en una época de expansión hacia el Oeste y de primitivas redes de transporte. Este artículo muestra que los negocios a gran escala del banco en el cambio de moneda extranjera y nacional transformaron esta potencial incompatibilidad o ‘trade-off’ en una sinergia positiva entre las obligaciones privadas y públicas del banco. El banco tuvo éxito financiero porque encontró un nicho del mercado – la provisión de servicios de pagos internacionales e interregionales – cuya explotación tuvo la virtud añadida de reducir los costes para el banco derivados de ser el agente fiscal del Tesoro.

Second bank of the United States - History

Second Bank of the United States
(4th & Chestnut Streets)

William Strickland designed the bank in the early nineteenth century after President James Madison decided not to veto Congressional legislation establishing the bank. The bank was closed in 1836 when President Andrew Jackson did exercise his veto power over the renewal of the charter. We have included the Second Bank in this Historic Map because the bank is a virtual portrait gallery of the Framers. In the gallery are portraits of five of the Supreme Court Justices who served in Old City Hall: John Jay, Oliver Ellsworth, William Cushing, Samuel Chase and Bushrod Washington. A portrait of Bishop White by Charles Willson Peale also hangs in the Second Bank. A statue of Robert Morris, financier of the Revolution, is at the back of the bank. Also in the general area at the back of the bank are reminders of the location of the Secretary of the Navy's Office and the Surgeon's Hall Site. One can also find a reconstruction of what "a working class garden" might have looked like in the late eighteenth century.

The History

Eighty-five of the portraits on view here are by Charles Willson Peale.

The Second Bank of the United States earned its place in history in 1832 when President Andrew Jackson vetoed a bill seeking to re-charter the bank because he viewed it as an unconstitutional monopoly.

Running for reelection, Jackson made his anti-bank stance a critical issue of his campaign and handily defeated opponent Henry Clay.

Eighty-five of the portraits on view here are by Charles Willson Peale, one of early America’s most famous portraitist.