The Second Bank of the United States soon became the focus of public resentment. Like its predecessor, it was a private, profit-making corporation that served as the government’s financial agent, issuing paper money, collecting taxes, and paying the government’s debts. It was also charged with ensuring that paper money issued by local banks had real value. The number of local banks had risen to more than 200—a sign of the accelerating market revolution. They promoted economic growth by helping to finance manufacturing and commerce and extending loans to farmers for the purchase of land, tools, consumer goods, and, in the South, slaves. They also printed paper money.
Today, only the federal government issues paper money, and the amount is determined by the Federal Reserve Bank, not the amount of gold held at the repository at Fort Knox. But in the nineteenth century, paper money consisted of notes promising to pay the bearer on demand a specified amount of “specie” (gold or silver). The value of the currency issued by individual banks depended on their reputation for stability. Since banks often printed far more money than the specie in their vaults, the value of paper currency fluctuated wildly. The Bank of the United States was supposed to prevent the overissuance of money. Because it held all the funds of the federal government, it accumulated a large amount of paper money issued by local banks, which had been used to purchase public land. The Bank of the United States could demand payment in gold and silver from a local bank in exchange for that bank’s paper money. This prospect was supposed to prevent local banks from acting improperly, for if it could not provide the specie when asked, it would have to suspend operations.