Financial History Issue 124 (Winter 2018) | Page 39

By Clyde Haulman
By the summer of 1818, the future of the
recently-chartered Second Bank of the
United States was in serious doubt. Cre-
ated by Congress in 1816, the Bank began
its operations in early 1817 as the boom
following the War of 1812 was underway.
Fueled by a combination of European
economic recovery, the opening of trade
following the Napoleonic Wars and poor
crop yields in Britain and Europe, demand
for American agricultural products, par-
ticularly cotton, rose dramatically driv-
ing up their prices. This, along with the
closing of the threat posed by the British
and Native Americans on the frontier,
increased the demand for southern and
particularly western lands dramatically.
The government’s easy credit policy for
land purchases aided this expansion of
demand as public land sales rose 37%
between 1815 and its peak in 1818. The
export trade, transportation (particu-
larly shipbuilding and western riverboat
construction), banking and insurance all
prospered as well.
As the boom came to a halt in mid-1818,
the Second Bank was caught dramatically
overextended and unable and/or unwill-
ing to reign in its activities. In early 1819,
the Board appointed Langdon Cheves of
South Carolina its new president with the
belief he could save the Bank.
Chartered with the objectives of restor-
ing confidence in the currency and
bringing order to Treasury deposits and
payments, the establishment of the Sec-
ond Bank was a response to a variety of
Treasury notes in other northern cities
and suspending specie payment follow-
ing the capture of Washington. Further
exacerbating the situation was the rapid
expansion of state-chartered banks to fill
the void created by the disappearance of
the national bank. In the year following
the demise of the First Bank, the number
of state banks increased 22%, and by 1816
there were 232 state banks, almost double
the number in 1811.
With Treasury operations in disarray
and a currency consisting of over-issued,
mostly non-convertible state bank notes,
supporters of a national bank pushed to
overcome the objections of hard money
interest. After seven tries over a two-year
period, a charter for the new bank was
secured. However, its first two years of
operation under Bank President William
Jones were characterized by a combina-
tion of the growing nation’s insatiable
demand for specie, mismanagement,
speculation and fraud.
Stock in the new bank was fully sub-
scribed, in part thanks to Philadelphia
banker Stephen Girard, but few of the
sale’s proceeds were in the form of specie.
A large part of the subscrip