The Second Bank of the United States and the Inflation after the War of 1812

Abstract

STUDIES of the Second Bank of the United States have usually given more attention to its death throes than to its birth pangs. The customary account of the Bank's early years holds that it was simply mismanagement and blind ignorance on the part of William Jones, first president of the Bank, that permitted nation-wide inflation in 1817 and 1818 and brought resultant economic depression and near-failure of the Bank in 1818-19.2 This account contains, of course, an important part of the truth. Jones was chosen as president of the Bank for his political qualifications rather than his knowledge of economics and banking. While he took no direct part in the fraud which characterized the operations of the Baltimore branch, he failed to prevent the fraud and profited financially from it. More important, Jones failed to control the western and southern branches of the Bank and to check the overissue of notes by the state banks. Even at its best, Jones's management of the Bank was pedestrian, and he demonstrated none of the brilliance that Nicholas Biddle was later to bring to the job. While these parts of the customary account are an important part of the story of the Bank's early years, they are not the whole story. What the customary account fails to bring out clearly is the great magnitude of the task expected of Jones and the Bank and the great opposition to their attempts to carry oat this task. On the subject of the problem of inflation which faced the Bank in 1817-18, Nicholas Biddle, testifying before a House Committee in 1832, made the following enlightening comment: