This section is from the book "Elementary Economics", by Charles Manfred Thompson. Also available from Amazon: Elementary Economics.
It must not be thought from what has been said that either of the two United States banks had enjoyed a monopoly. Numerous state banks competed with them, and opposed them at every point. This opposition, in fact, accounts in large measure for their downfall. President Jackson's veto in 1832, caused many other state banks to be organized. During the next thirty years the banking business was characterized by over-expansion and uncertainty. Many banks issued notes with little regard for their redemption, and undertook financial enterprises out of all proportion to their resources. During this period, however, there was developed the idea of free banking. Hitherto it had been the practice for state legislatures to grant special banking charters, thus opening the door to favoritism and even graft. A free banking law, on the contrary, permitted the establishment of a bank whenever a group of men who desired to do so could comply with a general banking law. No doubt the result was an increase in the number of banks in the country. Yet bankers, as never before, felt the necessity of conducting their business on a high plane, since they were no longer protected by the difficulties which competitors would have in getting charters. Such was the banking situation when the Civil War opened.
 
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