"The Economic Consequences of the Bank War. New York: Watson Publishing, 1963, 378-388.
During the 1830's and institution existed known as the Second Bank of the United States. It is Jackson's veto and destruction of the Second Bank that defines what is now called the Bank War, which is thought to be one of the factors leading up to the inflation and expansion of the 1830's. However, there are many analysts today that are now beginning to realize that the Bank war was only a piece of the small puzzle in the cause of the price rise.
First, the Second Bank needs to be more adequately explained. It was actually the holder of the greatest amount of federal funds and therefore controller of the greater majority of government transactions. The banks job was to encourage the issuance of a uniform national currency, be a central bank to the nation, and to set up a network of branches in each state. It is President Jackson that vetoed the bill renewing the Second Bank's charter, which later led to the transfer of government funds from 1833 to 1834 to state banks. The Bank's president, Nicholas Biddle, reacted by restricting credit and accumulating reserves within the bank. This in turn caused a constriction on the money supply and an immeasurable recession.
There are other factors however that calculate into the recession. For instance, without the Second Bank many state banks were allowed to expand their liabilities without increasing their reserves causing and increase in the stock of money leading to inflation. Also, due to and increased sense of security in the nations banking system, people were more willing to hold more bank notes and deposits allowing banks to expand even more without needing to in crease the reserve. This left the size of the money stock the same but lowered the amount of coinage per stock, leading to inflation. It is also believed that internal development led to extreme demands for goods and gold.
