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Panic of 1837

A long line of important studies claimed that Jackson's policies, especially the destruction of the Second Bank of the United States [S.B.U.S.] and the "Specie Circular," caused the Panic of 1837. Bourne (1885), Schlesinger (1945), Hofstader (1948), Meyers (1960), and Hammond (1957), among others, contended that the S.B.U.S. kept state banks from issuing too many notes. The destruction of the S.B.U.S. led to rampant abuses, an expansion of credit, and a speculative bubble that Jackson burst asunder with the "Specie Circular," which drained specie out of eastern banks to the west by mandating the payment of specie for federal land, most of which was west of the Appalachians.

The depression beginning in the year 1837 followed a period of prosperity of several years' duration. Bear in mind that during this period the country was still in a pioneer stage - no railroads, no telegraph, no means of transportation other than by water and wagon roads. Agriculture was the main occupation of the people, with cotton and tobacco the principal products in the South, and wheat, corn, and cereals in the North. Crops were harvested by means of the scythe and cradle, and the grain was still threshed by the flail as late as 1833.

New York was the main gateway for exports in the North and New Orleans in the South. The census of 1830 gives the total population of the United States as 12,866,020. The Atlantic Coast and Gulf States were densely settled, with a scattered population only throughout the country west of the Alleghenies. The rapid progress of the westward movement into the Middle West states-Ohio, Indiana, Illnois, Kentucky, and Tennessee - reached the proportions of a land rush in the early thirties. Towns sprang into existence almost overnight. This great influx of people caused the rapid development of land, means of transportation, and extraordinary activity along all industrial lines.

Many banks established in the new towns issued their own paper money without specie backing. During this period London, England, was the financial center of the world and the main source of capital for investment in the United States. Philadelphia was the stronghold of American finance, with New York or Wall Street a secondary money center.

The moneyed interests at Philadelphia, centering around one Nicholas Biddle, dominated the financial affairs of the United States. Biddle was a visionary type. He was careless regarding details, prodigal in making loans, and very lax in investigating conditions surrounding the loans made. He himself was a heavy speculator in cotton. Because of his prominent financial position, his example encouraged opportunists of every sort to enter the speculative field. It was easy to secure liberal advancements on enterprises of all kinds; to secure credit for supplies beyond the wants of the people and for investment in unproductive public land. The gambling spirit of adventure and a desire for sudden wealth prevailed throughout the Union. Thus this became an era of speculative ventures, with all classes eager to invest their money in almost every sort of proposition presented.

The Josephs Banking Co., of New York, originally organized with $20,000 capital and later increased to $400,000, was the representa- tive of the Rothschilds of England. Following the example of Biddle, this firm plunged boldly into hazardous cotton and land speculations. President Jackson bitterly opposed what he called the dangerous tendencies of Biddle's bank and the objectionable character of the loans made by it. His opposition to the prevailing practices eventually culminated in the Government's refusal to renew the charter of the Biddle bank and a removal of the Government deposits. The bank, however, continued to operate under a charter secured from the State of Pennsylvania, and to make up for the lost prestige Biddle launched an even more liberal policy in credits and trade.

This was the condition in the United States in the years immediately prior to 1837.

For a number of years there had been a general overtrading with America on the part of English merchants and the creation of many joint-stock banks and companies for this purpose. This, together with the credits extended to East Indian trades, China, and South America, caused a great expansion of the Bank of England issues and precipitated the financial panic in England in the latter part of 1836. The tightening of the money market in England during and following this panic brought with it many failures and a general stagnation of business throughout England and other European countries, and in the United States.

The retardation of normal business and the bank failures in England closed the market for many of the products of the United States. This was particularly true of the market for cotton, which constituted from one-third to one-half of our total exports and was the foundation of the prosperity of the South. Cotton declined 50 percent in price in 1837. The production of tobacco, sugar, and rice was also affected, but to a lesser extent.

The first evidence of the economic collapse during this era of speculation appeared in New Orleans and the South. Due to the decline in the price of cotton and the loss of much of the export trade, the cotton companies and the banks in New Orleans were compelled to close their doors, followed within a few days by the closing of nine-tenths of the business houses in the city of Mobile.

When the news of the failure of the cotton companies and the banks in New Orleans reached New York, it forced the Josephs Banking Co. to close, which precipitated the panic of 1837. This panic was followed by the usual bank and business failures throughout the country and brought on a general dullness of business, continuing for about five years.

The Panic of 1837 had many causes, some related to the ill-judged policies of Jackson’s administration, some completely beyond the control of any president or any government. Gold and silver prices, cotton demand, President’s Jackson’s elimination of the Bank of the United States, a poor harvest in England, and other factors contributed to the downturn.

These accumulating events reached a critical mass in early 1837, just as Van Buren was being sworn in. Panic shot through American financial markets, shattering the banking system and throwing the general population into disarray as a tide of business failures swept over the country. By summer, America had simply stopped working, and forlorn crowds of hollow-eyed men clustered at the doors of more and more banks, trying to get their money, wandering away dazed as those doors closed early, the vaults empty, their contents vanished. Earlier financial downturns had never been so thorough and smashing.

The panic also affected State attitudes about internal improvements. The Panic of 1837 brought an abrupt end to both state and federal improvements activities. The federal government was thrown into deficit for the first time since 1824 and federal improvements spending nearly halted.

President Martin Van Buren inherited the severe downturn in the American economy that began in 1836. It became Van Buren’s primary concern during his presidency. Historians have identified three causes of the depression that wracked the American economy during the late 1830s. First, English banks — responding to financial troubles at home — stopped pumping money into the American economy, an important reversal since those funds had financed much of the nation’s economic growth over the preceding two decades. Second, U.S. banks, which had overextended credit to their clients, began to call in loans after British banks cut their money supply.

Third, President Andrew Jackson’s “hard” money policies, especially the 1836 Specie Circular that aimed to stabilize what Jacksonians saw as an out-of-control economy by requiring that all purchases of federal land be made with precious metal (i.e. “hard” money) rather than paper (“soft”) money, only exacerbated the credit crunch.

Suddenly, state improvement efforts seemed reckless, not ambitious. As the downturn lengthened into 1841 and 1842, nine states (Florida, Mississippi, Arkansas, Indiana, Illinois, Maryland, Michigan, Pennsylvania, and Louisiana) defaulted on debts, with four of these (Arkansas, Florida, Michigan, and Mississippi) actually repudiating debts of $13.8 million. These failures, sometimes tainted by corruption, along with a popular rejection of state taxation to fund the not-self-financing improvements, led to a widespread “revulsion” against all government improvement efforts that included even successful states such as New York.

The three years subsequent to 1837 were a period of financial readjustment. Money did not become easier until the latter part of 1840. From that time on it continued growing easier until the depression was over, the first part of 1844. Wages were fairly well maintained, probably due to the !act that it was not a manufacturing or industrial age and most of the labor was engaged in agricultural and allied pursuits. Furthermore, the wage earner, because of the vast undeveloped resources of the country at that time, was not confined to any particular spot, but could move to a new locality and engage in other and equally fruitful occupations.

Many historians described the after effects of the Panic as a major depression. Studies by Murphy (1945), Adams (1995), and Hubbard (1968) showed how the depression destroyed the economy of Buffalo, New York, right down to its educational system. McLear (1977) detailed the troubles in Chicago, Trufant (1918) in New Orleans, and Simonton (1979) in Maine, while Peevy (1940) took the entire nation as his domain. McGrane (1924), the classic descriptive study of the Panic, argued that the Panic killed many poor people through starvation, hypothermia, and irnmunosuppression.