Author Insight Video

Transcript

After the American Revolution, the United States faced enormous challenges in organizing a national government. One of those challenges was to create a national bank. Alexander Hamilton, who was the first Secretary of the Treasury, spearheaded the effort to create a national bank. He did so for several reasons. He believed that this far-flung new American nation representing, initially, thirteen states, needed to develop a common, uniform national currency (paper money) so that it could circulate in the economy and generate prosperity. Also, Hamilton believed that America needed a national bank in order to ensure the stability and regulation of the money supply for the nation. The economy was growing fast but the money supply, when it was based just on gold and silver coins, was not growing as fast as the economy.

A growing economy in a capitalist system needs a growing money supply in order to circulate money in the marketplace. Thus, the first national bank was created in 1791. It was called the Bank of the United States and was chartered for twenty years. Then, a second national bank was chartered in the early 19th century and it was that bank that so aggravated Andrew Jackson.

Like many Southerners and Westerners, Andrew Jackson, who was born in South Carolina but spent his adult life in Tennessee, was very suspicious of a centralized national bank that was then located in Philadelphia and governed by a board of directors in that region. Andrew Jackson, as well as many other westerners, especially those who were farmers or landowners but not capitalists per se, was very suspicious of a single, central national bank. They feared monopoly, especially the idea that one bank and one board of directors would control the whole nation’s money supply.

Andrew Jackson frequently said that he hated all banks and would have preferred for the economy to have simply continued using gold and silver coins as the monetary supply because he trusted the value of coins but not of paper money. He was so intensely critical of the national bank that he launched a concerted effort to destroy it. He referred to it as a “hydra-headed monster.” He distrusted banks, despised bankers, and he feared that the American economy would continue to be strangled and governed and dominated by an eastern elite of bankers, unless he stepped in, which he did. In essence, he effectively destroyed the national bank and put in its place a decentralized banking system whereby the states developed their own banks. Also, localities and communities started their own banks.

The problem with such a decentralized banking system is that there was no longer a common currency. Different state banks issued different forms of paper money. Therefore, from the point of view of the national economy, it was chaotic. But it was decentralized and that became one of the themes of so-called “Jacksonian Democracy” along with restoring power to the people, localities, and states while weakening the power of the centralized bank over the national economy. It worked in the short term but created all sots of problems in the long term.