[Baek Young-ran's History Bookstore] Bank War (BANK WAR)

President Jackson vs. Central Bank Governor Biddle

Banking (war) is born out of war. After the defeat at the Battle of Trafalgar (1805), Napoleon implemented the Continental Blockade. In response, Britain blockaded the seas against Napoleon. The United States declared neutrality and demanded free trade with all nations. However, Britain seized American ships to cut off trade with France. The federal government's revenue, which relied on import tariffs, sharply declined, and hostility toward Britain, reminiscent of the Revolutionary War, flared up again. President James Madison declared war on Britain in June 1812 and finally invaded Canada.

The cost of war was always an issue. Secretary of the Treasury Gallatin pushed for the issuance of government bonds, but since the First Bank of the United States had been dissolved in 1811, selling bonds was difficult. Stephen Girard, who took over the First Bank, purchased the bonds, providing some relief, but relying on individuals for funding was no longer feasible. During the War of 1812?1815, the United States once again realized the necessity of a central bank.

To repay war debts and stabilize the value of paper money, above all, a central bank was needed. President Madison, who had dissolved the First Bank during his term, finally approved the Second Bank of the United States. However, the early Second Bank failed to fulfill its role. After Nicholas Biddle was appointed president in 1823, the central bank was able to operate a stable credit and monetary system. On this foundation, solid economic growth was achieved over the next decade.

At this time, a strong opponent of the central bank entered the political arena. He was Andrew Jackson. Jackson, from North Carolina, was a self-made man who became a lawyer through self-study. He had experience suffering from a creditor's fraud while engaged in real estate business. His strong aversion to banks was formed then. Later, after winning the Battle of New Orleans and becoming a hero of the War of 1812, Jackson won the 1828 presidential election by a landslide and entered the White House. Jackson was the first president from the western region, not the eastern region. He was the first president elected by directly campaigning to the public. The newly admitted western states granted voting rights even to white men who did not own land. His election was the victory of the "popular democracy" that Tocqueville witnessed.

Jackson believed his life experience as truth, and his hostility toward banks did not change after becoming president. He believed that only precious metals like gold and silver were money, and that paper money, letters of credit, promissory notes, and checks were a kind of fraud. In his eyes, banks were a gathering of such fraudsters, and the central bank was a representative of the rich and bankers. The common people who supported him believed that banks manipulated financial markets and caused inflation. They thought it ultimately caused land prices to skyrocket, benefiting only large landowners. Backed by their support, Jackson decided not to grant the central bank a monopoly. Jackson was straightforward and steadfast in his beliefs. After taking office, he openly expressed his hostility toward banks and waged an all-out war against the central bank.

The 1832 U.S. presidential election became the biggest issue over the extension of the central bank's charter. In American history, this is called the Bank War. President Biddle was a voter for Jackson and sought a reasonable solution with Jackson before the election. However, Jackson persistently opposed the extension of the central bank's charter. In response, Biddle pressured Congress to pass a bill extending the charter for 15 years. President Jackson countered with a veto. Upon receiving reports that an uprising would occur in Washington, Jackson said, "If the protesters enter Washington, they will be hanged immediately." Congress ultimately failed to override the president's veto.

In the November election that year, Jackson won a landslide victory. Although the central bank had four years left on its charter, it effectively became a lame duck. Shortly after his re-election, Jackson took revenge on the central bank. In 1834, Jackson withdrew the federal budget deposits from the central bank and deposited them in ordinary banks. In 1836, the Second Bank was converted into a regular bank under Pennsylvania state law. When asked after his retirement what his greatest achievement as president was, Jackson said, "Killing the central bank." In other words, he experimented with economic democracy based on his beliefs.

The aftermath of Jackson's experiment was severe. In the spring of 1837, the year after the Second Bank was dissolved, the bubble burst. On May 10, 1837, banks in New York stopped redeeming banknotes for silver or gold. Bank failures followed, and about 40% of the 850 banks in the United States closed. A severe economic crisis began, and by January 1838, 500,000 Americans were unemployed. Real estate values plummeted, and incomes sharply declined.

Of course, the panic was not entirely Jackson's fault. The 1837 panic was superficially triggered by a collapse in American cotton prices. Cotton prices fell because the Qing Dynasty in China, thousands of kilometers away, banned opium to address its trade deficit, and then Britain, facing a trade deficit with China, reduced cotton imports. The intertwined global economy was the cause of the panic. The economy, like politics, is not a battle of right and wrong. Jackson's mistake was treating the economy like politics. If the Second Bank had existed, people's lives at the time might have been less harsh.

The United States went without a central bank for over 70 years, and after experiencing the financial crisis of 1907, agreed on the necessity of a central bank. In 1913, the Federal Reserve Act was enacted, finally establishing a central bank. This bank has evolved and developed into today's Federal Reserve System.

Baek Youngran, Director of History Bookstore