The question of whether or not to have a central bank dominated political debates in the early United States.  The first central bank, the Bank of North America, was chartered in 1781, even before the Revolutionary War was over, by enthusiastic Nationalists and supporters of big, centralized government.  This attempt was unsuccessful, as the BNA Notes – known to have been produced via fractional reserve banking – were disliked by the public, and quickly lost their purchasing power.  The BNA had to be converted into a normal commercial bank in 1784.

Not much time passed however before the advocates of big government - the Hamiltonian High Federalists, and their successors the Whigs and the Republicans – were able to charter a new central bank.  In 1791, Libertarian Thomas Jefferson argued against it, but ultimately the decision lay with President George Washington, who misguidedly granted the First Bank of the United States a 20 year charter.  When it expired in 1811, libertarian James Madison was President; the charter was not renewed. 

However, Madison reversed many of his positions during and after the War of 1812 (1814) fought between Britain and the U.S.  The war was stated as being due to Britain imposing trade restrictions between the U.S. and France (who Britain was also at war with), and the draft of U.S. citizens into the British navy.  By 1814, the war was ended with neither side achieving a total victory, the reasons for fighting having disappeared.  The British regarded the war, which was mainly fought at sea, as a sideshow to the larger Napoleonic Wars.  The U.S. suffered many more losses that Britain, and, in the naïve hope of stabilizing the currency, which had suffered due to the huge costs of the war, in 1816 Madison granted the Second Bank of the United States a 20 year charter. 

Almost immediately, the central bank inflated the money supply, creating an artificial boom and malinvestments which led to the Panic of 1819.  Democrat libertarian Andrew Jackson vowed to destroy the bank.  He sought to destroy the bank for five stated reasons:

• It concentrated the nation's financial strength in a single institution.
• It exposed the government to control by foreign interests.
• It served mainly to make the rich richer.
• It exercised too much control over members of Congress.
• It favored northeastern states over southern and western states.

Jackson succeeded, and as President (1829-37) he vetoed the re-charter of the bank, after a titanic struggle.  With the money supply flooded with un-backed Notes, Jackson was unable to prevent the economy crashing in 1837, which led to a severe depression which lasted 5 years.  Despite this, Jackson correctly considered the destruction of the Second Bank his greatest achievement.  Written on his grave are the words “I killed the bank.”  Jackson was also the last President to completely pay off the federal public debt.  His reforms led to an era of relatively honest banking in the country, and temporarily the end of all centralized banking.