The Second Bank of the U.S. was chartered in 1816 with thesame responsibilities and powers as the First Bank. However, theSecond Bank would not even enjoy the limited success of the FirstBank. Although foreign ownership was not a problem (foreignersowned about 20% of the Bank's stock), the Second Bank was plaguedwith poor management and outright fraud (Galbraith). The Bank wassupposed to maintain a "currency principle" -- to keep itsspecie/deposit ratio stable at about 20 percent. Instead theratio bounced around between 12% and 65 percent. It also quicklyalienated state banks by returning to the sudden banknoteredemption practices of the First Bank. Various elements were soenraged with the Second Bank that there were two attempts to haveit struck down as unconstitutional. In McCulloch v. Maryland(1819) the Supreme Court voted 9-0 to uphold the Second Bank asconstitutional. Chief Justice Marshall wrote "After the mostdeliberate consideration, it is the unanimous and decided opinionof this court that the act to incorporate the Bank of the UnitedStates is a law made in pursuance of the Constitution, and ispart of the supreme law of the land" (Hixson, 117). The Courtreaffirmed this opinion in a 1824 case Osborn v. Bank of theUnited States (Ibid, 14).
Not until Nicholas Biddle became the Bank's president in1823 did it begin to function as hoped. By the time the Bank hadregained some control of the money supply and had restored somefinancial stability in 1828, Andrew Jackson, an anti-Bankcandidate, had been elected President. Although the Second Bankwas not a campaign issue (Biddle actually voted for Jackson), by1832, four years before the Bank's charter was to expire,political divisions over the Bank had already formed (Ibid).Pro-Bank members of Congress produced a renewal bill for theBank's charter, but Jackson vetoed it. In his veto messageJackson wrote,
A bank of the United States is in many respects convenient for the Government and for the people. Entertaining this opinion, and deeply impressed with the belief that some of the powers and privileges possessed by the existing bank are unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people, I felt it my duty...to call to the attention of Congress to the practicability of organizing an institution combining its advantages and obviating these objections. I sincerely regret that in the act before me I can perceive none of those modifications of the bank charter which are necessary, in my opinion, to make it compatible with justice, with sound policy, or with the Constitution of our country
(Ibid, 14-15).
Jackson was not opposed to central banking, per se, but to theSecond Bank in particular. No other bill to renew the Bank'scharter was presented to Jackson, and so the Second Bank of theUnited States expired in 1836. The U.S. would be without anofficial central bank until 1913 when the Federal Reserve Systemwas formed.
Jackson believed that the nation's money supply shouldconsist only of gold or silver coin minted by the Treasury andany foreign coin the Congress chose to accept. This view wasfully impractical. The gold and silver stocks of the U.S. wereterribly inadequate to provide a sufficient money supply ofJackson's preference. The U.S. at that time had no substantialmines of its own and regularly had a trade deficit, so there wasno dependable method to increase the money supply under whatJackson perceived to be the only Constitutional monetary system.
However, few others shared Jackson's opinions on thismatter. Even the so-called "Jacksonian" Supreme Court ruled in1837 in Briscoe v. Bank of Kentucky that state-chartered banks,state-owned banks, and the banknotes they created were fullyConstitutional (Hixson, 119). Combined with the unanimous 1819McCulloch ruling, the legal environment of the U.S. had clearlyestablished that central banking, state banking, and papercurrency issued by both entities were Constitutional. That theU.S. chose to proceed through the balance of the nineteenthcentury without a central bank would lead to interesting andcreative measures to construct a financial system.
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