Jackson’s Bank Veto 253had gotten it on a sound footing, the Bank of the
United States had flourished. In 1823 Cheves was
replaced as president by Nicholas Biddle, who managed
it brilliantly. A talented Philadelphian, only thirty-seven
when he took over the Bank, Biddle was experienced in
literature, the law, and diplomacy as well as in finance.
Almost alone in the United States, Biddle realized that
his institution could act as a rudimentary central bank,
regulating the availability of credit throughout the
nation by controlling the lending policies of the state
banks. Small banks, possessing limited amounts of gold
and silver, sometimes overextended themselves in mak-
ing large amounts of bank notes available to borrowers
in order to earn interest. All this paper money was legally
convertible into hard cash on demand, but in the ordi-
nary run of business people seldom bothered to convert
their notes so long as they thought the issuing bank
was sound.
Bank notes passed freely from hand to hand and
from bank to bank in every section of the country.
Eventually much of the paper money of the local
banks came across the counter of one or another of
the twenty-two branches of the Bank of the United
States. By collecting these notes and presenting them
for conversion into coin, Biddle could compel the
local banks to maintain adequate reserves of gold and
silver—in other words, make them hold their lending
policies within bounds. “The Bank of the United
States,” he explained, “has succeeded in keeping in
check many institutions which might otherwise have
been tempted into extravagant and ruinous excesses.”
Biddle’s policies in the 1820s were good for the
Bank of the United States (which earned substantial
profits), for the state banks, and probably for the
country. Pressures on local bankers to make loans
were enormous. The nation had an insatiable need for
capital, and the general mood of the people was opti-
mistic. Everyone wanted to borrow, and everyone
expected values to rise, as in general they did. But by
making liberal loans to produce merchants, for exam-
ple, rural bankers indirectly stimulated farmers to
expand their output beyond current demand, which
eventually led to a decline in prices and an agricultural
depression. In every field of economic activity, reck-
less lending caused inflation and greatly exaggerated
the ups and downs of the business cycle. (This lesson
was hammered home to Americans during the finan-
cial meltdown of 2008, when lending for home mort-
gages spiraled out of control and the mortgage
market crashed.)
Biddle’s policies acted to stabilize the economy,
and many interests, including a substantial percentage
of state bankers, supported them. They also provoked
a great deal of opposition. In part the opposition orig-
inated in pure ignorance: Distrust of paper money did
not disappear, and people who disliked all paper saw
the Bank as merely the largest (and thus the worst) of
many bad institutions. At the other extreme, some
bankers chafed under Biddle’s restraints because by
discouraging them from lending freely, he was limiting
their profits. Few financiers realized what Biddle was
trying to accomplish. What was “sound” banking
practice? Honest people disagreed, and many turned
against the ideas of Nicholas Biddle.
Finally, some people objected to the Bank because
it was a monopoly. Distrust of chartered corporations as
agents of special privilege tended to focus on the Bank,
which had a monopoly of public funds but was man-
aged by a private citizen and controlled by a handful of
rich men. Biddle’s wealth and social position intensified
this feeling. Like many brilliant people, he sometimes
appeared arrogant. He was unused to criticism and dis-
dainful of ignorant and stupid attacks, failing to see that
they were sometimes the most dangerous.Jackson’s Bank Veto
This formidable opposition to the Bank was diffuse and
unorganized until Andrew Jackson brought it together.
When he did, the Bank was quickly destroyed. Jackson
can be included among the ignorant enemies of the
institution, a hard-money man suspicious of all com-
mercial banking. “I think it right to be perfectly frank
with you,” he told Biddle in 1829. “I do not dislike
your Bank any more than all banks. But ever since I
read the history of the South Sea Bubble I have been
afraid of banks.”
Jackson’s attitude dismayed Biddle. It also mysti-
fied him, since the Bank was the country’s best defense
against a speculative mania like the eighteenth-century
South Sea Bubble, in which hundreds of naive British
investors had been fleeced. Bankers usuallyopposed
government restraints on lending. Almost against his
will, Biddle found himself gravitating toward Clay and
the new National Republican party, offering advanta-
geous loans and retainers to politicians and newspaper
editors in order to build up a following. Thereafter,
events moved inevitably toward a showdown, for the
president’s combative instincts were easily aroused.
“The Bank,” he told Van Buren, “is trying to kill me,
but I will kill it!”
Henry Clay, Daniel Webster, and other promi-
nent National Republicans hoped to use the Bank
controversy against Jackson. They reasoned that the
institution was so important to the country that
Jackson’s opposition to it would undermine his popu-
larity. They therefore urged Biddle to ask Congress to
renew the Bank’s charter. The charter would not
expire until 1836, but by pressing the issue before the
1832 presidential election, they could force Jackson