Keeping order in the chaos of proliferating state banks fell to the Second Bank of the United States under its new leader, Nicholas Biddle, a Philadelphia aristocrat who had been a lawyer, a poet, and an editor before becoming a banker. At the age of twenty-one, following a trip to Greece, he had conversed with dons at Cambridge University in England on the difference between ancient and modern Greek, to the delight of James Monroe, then the American minister to London; and it was Monroe who later, as President, nominated Biddie as a director of the Second Bank. Biddle wrote (though he did not sign) the standard account of the Lewis and Clark expedition, based on the explorers’ journals. Biddle was, simply, a man of parts, just the sort of person the Kitchen Cabinet around Andrew Jackson most distrusted.

Congressmen whose constituents complained of the shortage of money —which meant, then as now, most congressmen—found Biddle and his bank a natural target, made easier to hit by the fact that the Second Bank (unlike today’s Federal Reserve) was a profit-seeking enterprise, in competition with other banks, as well as a central bank with quasi-governmental responsibilities. With the attack on Biddle and the Second Bank by the Jackson administration, banking briefly became the central issue in American politics.

There was, of course, no contest: though Biddle responded as central bankers will when under political attack—by inflating the currency—Jackson won. Bray Hammond notes the delightful fact that the administration’s charge against Biddle was led by Amos Kendall, a self-made Kentucky businessman in Jackson’s original Kitchen Cabinet, who while still an undergraduate at college had submitted a poem to a prize contest in a magazine Biddle edited, failed even to receive honorable mention, and years later still remembered the snub enough to mention it in his autobiography.

With the destruction of the Second Bank, many of the states went wild in chartering local banks, all of which issued bank notes. The economy responded to the great outrush of new money with the immense investment programs that made the United States an industrial power. By the Civil War there were more miles of railroad laid in this country than in all of Europe, then six times as populous. All this was done—had to be done—on borrowed money, and the nation’s thinly capitalized banks were prone to failure if even a tiny proportion of their loans went bad. Some banks, in addition, had been designed to fail: they issued their bank notes against trivial or even nonexistent holdings of specie, protecting themselves by means of their out-of-the-way location. It was said that people who wanted to cash in the paper of the Michigan banks would have to travel out “among the retreats of wild cats,” coining a phrase still in use, though now for oil wells rather than for banks.

It was a system calculated to benefit the slick Kansas trader, to multiply the profit of the land speculator who knew enough to pay with depreciated paper money and sell only for good money. Some states would have none of it: as late as 1850, either through legal restriction or public pressure, banks could not be incorporated in Arkansas, California, Florida, Illinois, Iowa, Texas, or Wisconsin, and banking was a state-controlled monopoly in Indiana and Missouri. When Illinois, Indiana, and Wisconsin moved to free banking, the excesses were remarkable—of the ninety-four new banks opened in the first three years of Indiana’s permissive law, fifty-one failed before the third anniversary. Much of this was due to incompetence, amateur banking by people who had no notion of how much they had to keep in cash and how much they could lend, much was due to dishonesty, and some was the result of plain bad luck. Even good, honest bankers could get into trouble if something happened in New York or London that denied them funds from their accounts or their lines of credit in the metropolitan centers.

Before the Civil War, American enterprise raised its long-term money in London, and between the bond selling and the financing of imports and exports, the network of American banking became dependent on the vagaries of international trade. These years saw the arrival of truly international banking, with firms like the Philadelphia-based Brown Brothers (now Brown Brothers, Harriman in New York, still a “private” bank with partners rather than stockholders) and London’s Baring Brothers (who married Americans—sisters, in fact).

But more important than any of these more publicized situations was the solid establishment of hundreds of small, locally owned, highly independent “country banks.” These were to a significant degree co-ops: their directors, who were liable for an additional call on their own resources up to the extent of their original investment in the bank, were the business leaders of the town and the larger farmers in the surrounding countryside. It was the banks that made enterprise possible, freeing the local manufacturer from the need to finance his customer’s inventories and allowing the farmers to concentrate on cash crops and the storekeepers to stock merchandise from all over.