Under President Nicholas Biddle the Second Bank of the United States recovered from its problems associated with the Panic of 1819. It was well-managed and acted as a central bank. It monitored the lending policies of state banks which, if left unregulated, were likely to cause inflation and exaggerate business cycle swings. The Bank's stabilizing policies had strong support, especially among eastern hard-money advocates who feared paper money, but it did have opponents; state banks generally disliked its regulating authority. To some the National Bank smacked of special privilege because it held a monopoly of public funds, yet was governed by a handful of rich investors.
Jackson came into office suspicious of the Bank of the United States and made vague threats against it. With the backing of supporters in Congress, Bank President Biddle asked Congress to re-charter the Bank in 1832, four years before the old charter was due to expire. Henry Clay took up the Bank's cause as a political tactic, hoping that congressional approval of the Bank would embarrass Jackson. Jackson's opponents and Bank supporters thought that if Jackson vetoed the bank bill it would cost him the election. If Jackson's veto were overridden, the Bank would be guaranteed additional life.
Jackson was no fool: he declared war on the "monster" corporation, which he was convinced violated the fundamental principles of a democratic society. He vetoed the Bank recharter bill on the grounds that the Bank was unconstitutional, despite Marshall's Supreme Court decision to the contrary, and called on the people for support. Jackson also claimed he vetoed the Bank charter because it violated equality of opportunity, and Congress upheld the veto. Clay and Jackson took their argument to the public in the election of 1832 where Jackson's victory spelled doom for the Bank.
The Bank supporters and Jackson opponents badly misjudged both Jackson and people's attitudes toward the Bank. After the election Jackson said, "The Bank tried to kill me, but I will kill it!" He showed his opponents no mercy. He proceeded to destroy the Bank by withdrawing all federal deposits from the National Bank and depositing it into selected state banks (called "pet banks"). Biddle retaliated by calling in outstanding loans, which he hoped would precipitate a crisis that would be blamed on Jackson. That ploy failed, but Jackson's destruction of the Bank cost him support in Congress, especially in the Senate, where fears of a dictatorship began to emerge.
Jackson, like Jefferson, was very hostile to banks. He once told Biddle, "It's not this bank I don't like, it's all banks." He didn't understand that the purpose of the National Bank was to prevent the very thing he was concerned about—speculation of the kind that had led to the infamous "South Sea Bubble," which ruined many investors. Banks made money by manipulation, Jackson thought. There had been early attempts to politicize the bank, and Jackson believed the pro-bank people were his political enemies.
World History
