THE BANK CONTROVERSY AND THE SECOND PARTY SYSTEM 1833-1840
Jackson’s banking policies spurred the rise of the opposition Whig party, mightily stimulated popular interest in politics, and contributed to the severe economic downturn, known as the Panic of 1837, that greeted his successor, Martin Van Buren.
There was controversy in banking because there was no official paper money in the US. People would be paid in notes that they would collect on at banks. If a note depreciated then the owner stood to lose money.
The War on the Bank
Jackson did not want the US Bank to regain power, so he began removing federal deposits from the Bank of the US and placing them in state banks.
This policy allowed state banks to increase their lending capacity. But Jackson hated both paper money and a speculative economy in which capitalists routinely took out large loans. The policy of removal seemed a formula for producing exactly the kind of economy that Jackson wanted to abolish.
During the next few years, fueled by paper money from the pet banks and by an influx of foreign specie to purchase cotton and for investment in canal projects, the economy experienced a heady expansion. He could not stop it. Pressured by Congress, he signed into law the Deposit Act, which both increased the number of deposit banks and loosened federal control of them.
Aside from Jackson and a few others, the most articulate support for hard money came from a faction of the Democratic Party in NY called the Locofocos.
The Rise of Whig Opposition
During Jackson’s second term, the opposition National Republican party gave way to the new Whig Party, which developed a broader base in both the South and the North than had the national Republicans.
The Whigs were making significant inroads, particularly in southern market towns and among planters who had close ties to southern bankers and merchants.
Social reformers in the North were infusing new vitality into the...