BANK OF THE UNITED STATES
The American Revolutionary War resulted in the emergence of a new country faced with the task of establishing a fundamental basis for government embodying the principles of freedom for which the colonists had fought. The need for a sound financial system was most urgent, and this was remedied by the creation of the First Bank of the United States in 1791.
ALEXANDER HAMILTON, first U.S. secretary of the
treasury, devised the original plan for the bank. It
was argued that the Constitution did not empower
Congress to institute such a bank, and that the
bank was partial to commercial interests as
opposed to those of farmers. Congress, nonethe-
less, endorsed the passage of the bank’s charter.
The bank, located in Philadelphia, began
with assets of $10 million, one-fifth of this
money furnished by the federal government, the
remainder provided by outside investors. Its
affairs were administered by twenty-five direc-
tors. The bank’s powers were limited to com-
mercial enterprises, and loans were processed at
six percent interest. The first bank performed
well, but renewal of its charter in 1811 was
thwarted by the argument against its constitu-
tionality and by the opposition of agricultural
workers. The First Bank of the United States
closed for business in 1811 with a profit.
The need for a second national bank became
apparent in 1816, after the WAR OF 1812 cata-
pulted the country into a financial crisis. How-
ever, the constitutionality of such a bank was
still in dispute. In MCCULLOCH V. MARYLAND,
the Supreme Court, in an opinion by Chief Jus-
tice JOHN MARSHALL, held that Congress pos-
sessed the authority to create a national bank
and that the states lacked the power to tax it (17
U.S. [4 Wheat.] 316, 4 L. Ed. 579 [1819]).
The new bank began on a grander scale, with
capital amounting to $35 million. For the first
three years it tottered on the verge of disaster
under the mismanagement of its chief adminis-
trator, William Jones. When Jones left the bank
in 1819, Langdon Cheeves assumed his duties,
and the bank became sound. By the time
Nicholas Biddle became president in 1823, the
bank was functioning efficiently, and it
remained a reliable system of finance for the
next ten years.
In 1832, Biddle requested renewal of the
charter, which was due to expire in 1836. The
bank again met opposition by those who
believed it had become too powerful. President
ANDREW JACKSON led the opposition, and the
controversy became an issue in his presidential
election campaign in 1832 against HENRY CLAY.
Clay, an advocate of the bank, had encouraged
Biddle to apply for the charter renewal earlier
than necessary.
The reelection of Andrew Jackson sounded
the death knell for the Second Bank of the
United States. He rejected the renewal of the
charter and in 1833 deposited federal monies
into selected state banks, termed “pet banks.”
The loss of federal funds greatly crippled the
effectiveness of the bank, and it closed in 1836, the year its charter expired.
FURTHER READINGS
Brown,Marion A. 1998. The Second Bank of the United States
and Ohio, 1803–1860: A Collision of Interests. Lewiston,
N.Y.: Edwin Mellen.
Cowen, David Jack. 2000. The Origins and Economic Impact
of the First Bank of the United States, 1791-1797. New
York: Garland.
CROSS-REFERENCES
Banks and Banking.
