The major political issue of Jackson's presidency was his war against the second Bank of the United States. To understand this battle, it is necessary to recognize that the banking system was wholly different than it is today. The federal government coined only a limited supply of hard money and printed no paper money at all. The principal source of circulating currency was private commercial banks (of which there were 329), chartered by the various states. The notes they issued promised to pay gold or silver upon demand, but they were backed by a limited amount of precious metal and they fluctuated greatly in value.
In 1816, the federal government had chartered the second Bank of the United States in an effort to control the notes issues by state banks. By demanding payment in gold or silver, the national bank could discipline overspeculative private banks. But the bank was unpopular for various reasons. Private banks resented its privileged position in the banking industry. Some blamed it for causing the Panic of 1819. Others resented its political influence.
In 1832, Henry Clay, Daniel Webster, and other Jackson opponents, seeking an issue for that year's presidential election, passed a bill rechartering the bank. The bank's charter was not due to expire until 1836, but Clay and Webster wanted to force Jackson to take a clear pro-bank or anti-bank position.
Jackson vetoed the bill in a forceful message that condemned the bank as a privileged "monopoly" created to make "rich men...richer by act of Congress." The bank, he declared was "unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people." In the presidential campaign of 1832, Clay tried to make an issue of the bank veto, but Jackson swept to an easy second-term victory, defeating Clay by 219 electoral votes to 49.
Jackson interpreted his reelection as a mandate to undermine the bank still further. In September 1833, he ordered his Treasury Secretary to divert $11 million in federal revenues from the Bank of the United States to selected state banks, which came to be known as "pet" banks. The Treasury Secretary and his successor resigned rather than carry out the President's order. It was only after Jackson appointed a second new secretary that his order was implemented. Jackson's decision to divert federal deposits prompted his adversaries in the Senate to formally censure his actions as arbitrary and unconstitutional.
The bank's president, Nicholas Biddle (1786-1944), responded to Jackson's actions by reducing loans and calling in debts. Over six months, the bank reduced loans by nearly $10 million to pressure Jackson into approving a new charter. "The Bank...is trying to kill me," the president declared, "but I will kill it." The following letter deals with the economic panic that followed Biddle's decision to call in loans, and Jackson's decision to prohibit all bank notes worth less than five dollars.
The panic is fast subsiding and like other panics must end in leaving society in a more pure state. The cowards fly, and the corrupt & infected portion of our county will fail, and leave our country in a more healthy condition, by giving us, in time, a metallic currency to meet the wants of the labouring class of the community by putting down the circulation of notes under five dollars and in time, under twenty dollars.... The tyrant [the Second Bank of the United States] is chained & must expire at the end of its charter.