Biddle, Nicholas

Nicholas Biddle (1786-1844) was the third and most famous president of the Second Bank of the United States (SBUS). He was an active president of the Bank, perhaps anticipating certain central-banking functions (Hammond, 1991). Biddle famously opposed the US President Andrew Jackson during his "war" against the SBUS.

The SBUS was created in 1816, the First Bank of the United States having lost its charter in 1811. The fiscal requirements of the US federal government during the War of 1812, the bank runs of 1814, and wartime inflation conspired to change the mind of US Congress (Walters, 1945). The SBUS was to be private, though 20 per cent of its capital was supplied by the US federal government in the form of bonds. In addition, the SBUS would maintain a special relationship with the US federal government, as the US President would appoint five members of its 25-person board, while the bank would act as the government's fiscal agent. The SBUS was subscribed with roughly 35 million US dollars, and was, by Biddle's tenure, the largest corporation in the nation (Hammond, 1991).

Biddle was born to a wealthy and notable family, and was broadly educated at a very young age. Prior to his work at the SBUS, Biddle was elected to the Pennsylvania state legislature, where he advocated for the granting of a state charter to the SBUS. He was subsequently appointed by US President Monroe as a director of the Bank, and although he had little experience, he is said to have been well read in political economy (Catterall, 1902). Aged 37, Biddle became the president of the SBUS.

A key question is whether Biddle and the SBUS can be said to have performed central- bank functions. Because state banknotes were accumulated by the SBUS, the Bank had the opportunity to redeem (or fail to redeem) state banknotes for specie. This could potentially place (or relieve) pressure on the ability of state banks to create new credit (Hammond, 1991). Interestingly, this is essentially the opposite situation to today's central banks that have a (net) debt to private banks and attempt to affect credit condi- tions through the manipulation of reserves. In addition, the SBUS made direct loans to the private sector, as it also functioned as a commercial bank. There was, however, a conflict, given the need to maintain the SBUS reserve position in a crisis and its potential desire to act as lender of last resort. The SBUS would be under pressure to contract loans and note issue precisely when its services as lender of last resort would be most needed. Overall, it seems that Biddle used the SBUS to modify reserves in a countercyclical manner.

Additionally, Knodell (1998) describes how Biddle created both an interbranch clear- ing system and had the SBUS become a market maker in domestic bills of exchange, thus moving the nation towards a stable and uniform domestic currency system. The Bank's notes were accepted as a substitute reserve asset, and could be used in the foreign exchange market, and the Bank's own reserve policy could be changed.

The Jacksonian era ushered in a significant shift in the role played by federal and state government in the market. By the election of 1832, the SBUS had become a central issue in the Jacksonian platform (Remini, 1967). As Hammond (1991) notes, the coalition that mobilized against the SBUS was a combination of hard-money Democrats, state banks, and financiers in New York whose opposition to the Bank masked their conflicting interests.

Biddle applied for a re-chartering of the SBUS four years before its charter was set to expire in 1832 (Hammond, 1991). US President Jackson vetoed the charter, and his veto message would become a famous document. By the end of 1833, Jackson had selected "pet" banks to place government deposits in, after removing them from the SBUS.

Biddle's management of the politics of the SBUS war has alternatively been charac- terized as naïve (Hammond, 1991) or arrogant and potentially corrupt (Remini, 1967). After the removal of federal deposits, Biddle contracted the volume of outstanding loans, possibly to punish Jackson. The SBUS and Biddle then limped along for the remaining years of the charter.

The consequence of the removal of the charter is still a matter of debate. A speculative boom emerged and came crashing down in 1837. Prior to Temin's (1969) seminal work, a general consensus had emerged that the fall of the SBUS was to blame. Without federal deposits, the SBUS and Biddle lost a great deal of regulatory ability. Temin (1969) drew attention away from the SBUS war, and placed responsibility with a substantial specie inflow into the country. More recently, Knodell (2006) has argued that the removal of the SBUS did in fact contribute to the boom in speculative lending. In addition, it has been claimed that the "specie circular", a Jacksonian policy that required land sales to be made in specie (and which Biddle opposed), was partially to blame (Rousseau, 2002).

Biddle resigned from the SBUS in 1839, and by 1841 the institution was liquidated. He was blamed by the SBUS stockholders, who claimed that he had mismanaged funds. When Biddle died in 1844, he was battling a lawsuit from these stockholders (Hammond, 1947). Biddle then is remembered as an overreaching regulator by those sympathetic to the hard-money interests, while he is remembered by those sympathetic to the sound-money school as an early central banker who was eventually overcome by politics.

See also:

Bubble; Clearing system; Financial crisis; First and Second Banks of the United States; Lender of last resort; Reserve requirements.