History (Upper Division) Research Paper
In the world we live in, almost every adult who has a credit card uses an ATM whenever they need funds. When individuals are short of cash and require funding for specific projects, the first instinct is to seek loans from banks. Many people do not know the history behind the existence of banks despite using their services daily. Moreover, citizens do not understand the fundamental role that the U.S. congress played in ensuring that modern-day banking systems have regulations and provide services to Americans. The first and second banks stood out in similarity and differenced during the history of the formation of banks in the United States. Specifically, the second bank stood out for its inception despite concerns about the banks being unconstitutional.
History
The second bank was meant to try and correct the economy deficit created by the war of 1812. Congress wanted to ensure that the country changed its course by creating a banking system that could help the nation achieve a positive trend (Kondell 32). Many Americans were skeptical about the second bank because of the ambivalence it created about its constitutionalism. The first bank had given the federal government a complete overhaul of power, making people view the system as a get-rich scheme for the government. The first bank was not allowed to buy government bonds, although stored the government bonds. Moreover, the federal government had the power to request and audit the books of the bank at will. Lastly, the federal government was given the option to take out its money at any point of time it deemed it fit. Therefore, the first bank was completely at the mercy of the federal government. The federal government-owned the first bank in a similar manner to how the state banks were owned by private businessmen. Despite the success of the first government, congress did not want to extend the charter for the first bank.
Shockingly, congress still chartered a bill for the Second Bank of the U.S. congress passed the bill with similar context to the first ban. It is as if the country was trying to feed meat to a toothless dog. The congress did not make necessary changes to the bill to ensure that the actions of the bank were deemed as constitutional. The second bank had similar powers to the first bank. Furthermore, the Federal government was also delegated similar power to regulate money in the economy using the bank. The second bank created a similar monopoly to the first bank and only benefited rich investors, although this time around, many foreigners did not own the bank. However, the distrust created by the banking system made it difficult for Congress to renew the charter for the second bank when its time ended. The citizens saw that the second bank was only headed towards a similar fate as the first bank. Despite the changes that Nicholas Biddle brought to the leadership of the bank, the U.S. president refused the re-establishment of the second bank. President Jackson vetoed the demise of the second ban regardless of the change that the bank had brought to the country’s economy.
Constitutionalism of the Second Bank
Congress developed the charter for the second bank by developing the bill under Article 1 sections 8 and 10. Article 8 gave congress explicit powers to regulate funds and commerce in the country as well as trade with foreign countries. The congress was also given powers to collect taxes, impose tariffs, and use of other tools in the collection of funds on behalf of the government. The powers meant that congress had the power to endorse commercial laws, although the banking system was previously left to the states. The states controlled their economies through state-owned banks; however, the banks did not have the powers of the national bank.
Consequently, congress used section 8 in developing the national bank that would help in the collection of revenue on behalf of the government. The federal government also gave itself the power to control the economy through monetary policies. The move was not unconstitutional since the federal government already had the power to control the money in the nation. The U.S. developed the second bank as an institution to achieve the same. However, the second bank was different from state banks since it had the ability to print and distribute money. The national bank did not use exchange bills similar to state banks. Instead, the bank printed its own currency, which was regulated by the congress that had the power to regulate coin under section 8 of the constitution.
Congress instituted the national bank under the constitutional law to provide the country with an opportunity to collect necessary funds required to fund the 1812 War. The state banks did not have similar powers since they only stored money for its customers and issued them with a bill of exchange. The money was only stored in reserves and offered to individuals that wanted a loan. However, the banks did not have the ability to print money similar to the national bank. At some point, if a customer came and asked for money, and there was none in the bank reserve, the customer would have to wait.
The national bank had the power to collect money from U.S. citizens in the form of taxes and tariffs. The funds were directed towards financing the war. However, the primary importance of the national bank declined when peace talks took place in 1815. Many individuals disputed the ability of the federal government. Section 10 of the constitution had explicitly stated that the government could not print its own money to avoid a recession of the economy or devaluing the national currency. Under the section, the federal government could not print money. However, by chartering the second bank of the U.S., the federal government provided powers to the bank to print money (Hammond 92). The federal government only controlled the actions of the bank regarding the collection of money and regulation of money supply in the economy.
Significant concerns were raised over the loophole that the government had utilized in the establishment of the second bank. The government had duped its citizens into accepting a system that gave the congress complete power to control the printing of currency, collection of taxes, and regulation of money supply in the U.S. economy. Some individuals even went to court to contest the constitutionalism of the National Bank. Significant cases that stand out in U.S. history include McCulloch v. Maryland (1819) and Osborn v. Bank of the United States(1924).The rulings in the two cases showed the constitutionalism of the congress in developing the Second Bank of the United States.
In McCulloch v. Maryland (1819), the plaintiff sued the congress for establishing a national bank. The plaintiff claimed that the constitution did not confer the powers of the state to the federal government for it to seek personal gain (193). On the other hand, the defendant stressed that the state was giving its powers to the federal government as a means of central command for the whole nation. The defendant showed that the federal government had the complete power of the constitution to regulate coin (200). The constitution did not outline the specific means through which the federal government could use to regulate coin in the country. Therefore, the federal government was within its jurisdiction when it developed the Second U.S. bank (200). The ambiguity of the constitution in conferring powers to the federal government provided complete control over the banks that existed in the states. The constitution had not stated that the government could not develop a bank or an institution with which to execute its powers. The federal government had adhered to the constitution in developing the bank (208). The Judge ruled in favor of the constitution by stating that the federal government was constitutional in passing the charter that established the Second U.S. Bank. The ruling was later seconded in a similar case presented in 1924.
In Osborn v. Bank of the United States (1924), the plaintiff presented a case in court, suggesting that the national bank did not have any authority to collect funds from citizens. The plaintiff saw it as unconstitutional to collect funds from individuals (848). The National Bank was sued for its actions, which impeded on the rights of citizens. States found it unconstitutional that the national bank collected taxes from the state banks. State banks did not wish to pay taxes to the federal bank since the bank itself was a monetary tool used by the federal government.
The court case proved that the constitution showed that some legislative acts were contradictory. The Second Bank was not given the option to Sue states for lack of complying with taxations. However, states were expected to pay taxes to the national bank making it hard for the federal government to perform its action of a collection of coin (846). The court ruling reiterated the judgment passed in McCulloch v. Maryland (1819). The court upheld the constitutionalism of the bank. Congress was within its right when it opted to institute the bank as a tool for passing its laws. The court ruling showed that the legislature completely upheld the congress and its powers. Although the second bank was restricted from suing individuals when they failed to pay their taxes, the federal courts ruled that the state banks had to pay taxes to the national bank. After the end of the charter of the second U.S. bank, state governments moved to court to ensure that the state banks had similar jurisdiction to the national bank (Hixson 192). The government wanted to ensure that citizens could not sue the state banks as unconstitutional. The state banks showed that they wanted to please citizens by appearing legal.
Overall, the establishment of the Second bank raised significant concerns over the constitutionalism of the federal bank. Citizens found it surprising that the National bank collected taxes form state banks. Citizens were also skeptical about the whole issue since the bank seemed interested in profit-making. The federal government-controlled money, printed money, and held money on behalf of the government. Significant investors profited from the ability of the government to print and supply money. The federal government had the powers to impose monetary policies through the government and could withdraw its saving from the reserve at any time that it wished. The ability of the bank to print money was seen as unconstitutional under section 10 of the constitution.
However, the establishment of the second bank was constitutional. The government used sections 8 and 10 in its establishment, making it possible for the government to confer its powers form the entity. Section 8 gave power to the national government to control coin in the land. On the other hand, section 10 prohibited the government from printing money. The government developed an entity for controlling money in the country. The congress provided the national bank with powers to print money under its charter. The phenomenon ensured that the government did not directly print money; thus, it did not break any laws. The national bank helped the government control money in the United States. The use of a bank was not implicitly restricted in section 8 from developing a federal bank to perform the functions stipulated in section 8. The Congress utilized the two laws to develop the second bank of the U.S. and ensured that it functioned under the law as ruled in McCulloch v. Maryland (1819) and Osborn v. Bank of the United States (1924).
Works Cited
Hammond, Bray, Banks, and Politics in America, Princeton University Press, 1957.
Hixson, William F., Triumph of the Bankers: Money and Banking in the Eighteenth
and Nineteenth Centuries, London: Praeger, 1993.
Knodell, Jane Ellen. The Second Bank of the United States: “Central” banker in an era of nation-building, 1816–1836. Taylor & Francis, 2016.
McCulloch v. Maryland, 17 U.S. 316, 4 L. Ed. 579, 4 L. Ed. 2d 579, (1819).
Osborn v. Bank of United States, 22 U.S. 738, 6 L. Ed. 204, 19 S. Ct. 453 (1824).