The Causes of the Panic of 1837

The Causes of the Panic of 1837

Depressions and recessions have been occurring so regularly through our history that economists have reported variously on the resulting mass unemployment and countless business failures. Shortly after the War of Independence the United States witnessed the first of a series of depressions. After the panic of 1785 there was another slump followed by a third period of economic dislocation, but neither of these compared in intensity with the 1837 panic, which lasted four years, with many fortunes made and lost.

The financial panic of 1837 was a startling result of the unbounded speculation, and the executive experiments on the finances, of the preceding epoch. The first era of bank-expansion in the United States was due to the abrogation of the charter of the National Bank in 1811, and to the business activity which followed the close of the second war with Great Britain. A second National Bank was instituted in 1817. The undue extension of banking facilities which existed during this period was followed in 1819 by a necessary contraction. The bank circulation fell from $110,000,000 in 1816 to $65,000,000 in 1819. Financial distress and a general depression of industry succeeded, from which the country did not fully recover for several years.

When Jackson became President, in 1829, he very quickly manifested an enmity to the National Bank, which he declared to be corrupt, dangerous, and unconstitutional. His first hostile measure was to remove from it the government deposits, which he distributed among the State banks. This measure produced a storm of opposition, greatly disturbed the conditions of business, and caused general distress in the industrial community. But Jackson was unyieldingly obstinate in his opinions, and his hostility to the bank was next displayed in a veto of the bill to renew its charter, which would expire on March 3, 1836. The State banks took advantage of this condition of affairs to expand greatly their discounts, new banks came rapidly into existence, and the banking facilities were enormously increased, the discounts augmenting from $200,000,000 in 1830 to $525,000,000 eight years afterwards.

A series of wild speculations attended this expansion: foreign goods were heavily imported, and enormous operations took place in government lands, in payment for which paper money poured profusely into the treasury. Such was the state of affairs at midsummer of 1836. To check these operations a "Specie Circular" was issued by the Secretary of the Treasury, which required payment for government lands to be made in gold and silver after August 15, 1836. The effect of this series of executive actions, and of the fever of speculation which existed, was disastrous. The species which was expected to flow into the treasury in payment for public lands failed to appear. The banks refused discount and called in their loans. Property was everywhere sacrificed, and prices generally declined. Then, like an avalanche suddenly talling upon the land, came the business crash and panic of 1837, which caused the financial ruin of ...