McCulloch v. Maryland and Financial History in the Early 19th Century

Overview

• Year: 1819
• Figure on Trial: James McCulloch, head of the Baltimore branch of the Second Bank of the U.S.
• Issue: Refusal to pay Maryland state taxes, leading to a key Supreme Court case.
• Outcome: Established constitutionality of national banks but did not settle public perception.

Second Bank of the United States

• Initial Issues:
  • Leadership comprised of swindlers and embezzlers.
  • Speculation and mismanagement, particularly in the Baltimore branch.
  • Massive embezzlement (James McCulloch involved).
• Institutional Significance:
  • Intended to serve as a check on state banks.
  • Contributed to the Panic of 1819 through speculative lending practices.

The Panic of 1819

• First Financial Crash: Triggered by the speculative bubble burst.
• Consequences:
  • Banks demanded loan repayments, leading to widespread foreclosures.
  • State banks struggled to stay solvent, leading to a "mad dash for cash."
• Impact on Society:
  • Real estate transferred to the U.S. Bank to settle debts.
  • Economic ruin for many, especially in the West.

McCulloch v. Maryland

• Maryland’s Reaction: Taxed the federal bank in retaliation for economic policies.
• Supreme Court Decision: Affirmed the constitutionality of federal banks but complicated public perception.

Andrew Jackson's Presidency and Views

• Popularity: Gained from his military successes and relatable persona.
• Views on Banking:
  • Distrusted banks, particularly the U.S. Bank.
  • Supported by Martin Van Buren and the Democratic Party.
• Impact: His policies and actions would eventually lead to the end of the Second Bank of the U.S.

Nicholas Biddle

• Role: President of the Second Bank of the U.S. by age 37.
• Competence: Managed the financial system well, stabilizing U.S. currency.
• Challenges: Failed to navigate political opposition effectively.

The "Bank War"

• Biddle & Clay’s Strategy: Attempted to recharter the bank early to force Jackson's hand.
• Jackson's Veto: Rejected the recharter, leading to long-term economic and political effects.
• Consequence: America lacked a central bank for 77 years, leading to growing wealth inequality.

Political and Economic Context

• Van Buren's Role:
  • Established a Democratic network to oppose the bank.
  • Aimed to shift financial power to New York via the "New York Safety Fund System."
• Outcome:
  • Shifted America’s financial center from Philadelphia to New York.
  • Financial and political repercussions from Jackson’s veto.

Conclusion

• Legacy and Impact:
  • McCulloch v. Maryland settled constitutional issues but raised public distrust.
  • Jackson’s actions led to a prolonged absence of a central bank.
  • Set the stage for increasing American wealth inequality.