Lecture Notes on the Second Bank and the Panic of 1837

The Second Bank - Party Views

  • Two different views existed regarding the Second Bank:
    • Whigs: Believed expansion of banks aided the nation's economic development. Their slogan was "Vote Whig".
    • Democrats (Jackson): Considered banks and bankers as non-producers who profited from others' labor.
      • They advocated for the supremacy of "hard money" – gold and silver as the only honest currency.

The Bank War - 1832

  • Political struggle centered on rechartering the Second Bank of the United States.
  • Nicholas Biddle, head of the National Bank, sought renewal of the bank's charter in 1832.
  • Biddle warned that the national bank could destroy any state bank opposing its charter.
  • Jackson perceived Biddle's actions as a threat and believed Biddle would use his power to oppose Jackson's reelection.
  • Jackson's quote: "The bank is trying to destroy me, but I will kill it."
  • Jackson's actions increased the power of the presidency.
  • Jackson portrayed himself as the symbolic representative of the people, fighting against the wealthy on behalf of the common man.
  • Jackson vetoed the Bank's charter.

Pet Banks and the Economy

  • Two groups supported Jackson's actions:
    • State banks that aimed to print more "soft money".
    • Those who opposed banks and solely desired "hard money".
  • Jackson authorized the distribution of federal bank money to state banks (referred to as "Pet Banks") that supported him.

The Panic of 1837

  • Jackson's actions led to a massive speculation bubble in the purchase of western lands because there was no regulation of banks any longer.
  • This speculation resulted in an economic panic in 1837, followed by a depression that lasted until 1843.
  • Economic consequences:
    • Prices fell by 25 percent.
      • Pricedrop=25%Price_{drop} = 25\%
    • Businesses and farms across the country failed.
    • Labor movements collapsed as unemployment increased.
    • Urban workers lost their jobs.

The Van Buren Presidency

  • Martin Van Buren (Jackson's VP, elected president in 1836) was blamed for the economic downturn and was referred to as Martin "Van Ruin".
  • Van Buren's response: Implemented a new policy called the Independent Treasury.
    • This policy removed federal funds from Pet Banks.
    • These funds were held in the treasury under the control of government officials.
  • Effect: The issue split the Democratic party, leading many business-minded Democrats to become Whigs.