Panic of 1837

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Whig campaign poster blames Van Buren for hard times (1840).


The Panic of 1837 was built on a speculative fever. The bubble burst on May 10, 1837 in New York City, when every bank stopped payment in specie (gold and silver coinage). The Panic was followed by a five-year depression, with the failure of banks and record high unemployment levels.

Purported causes include the economic policies of President Andrew Jackson who created the Specie Circular by executive order and also refused to renew the charter of Second Bank of the United States, resulting in the withdrawal of government funds from that bank. Martin Van Buren, Jackson's hand-picked heir apparent, who became President in March 1837, five weeks before the Panic engulfed the young republic's economy, was blamed for the Panic. His refusal to involve the Government in the economy was said by some to have contributed to the damages and duration of the Panic. Of course, the initial Government intervention in the market had inadvertently been part of the cause of the problem, and further intervention might or might not have been useful. Democratic Jacksonians blamed bank irresponsibility, both in funding rampant speculation and by introducing paper money inflation. This was caused by banks issuing excessive paper money, leading to inflation.

Effects and aftermath

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Whig cartoon showing unemployment.


Within two months the failures in New York alone aggregated nearly $100,000,000 in value. "Out of 850 banks in the United States, 343 closed entirely, sixty-two failed partially, and the system of State banks received a shock from which it never fully recovered." [1]

A central banking cushion of any sort might have prevented some local failures. A few large local banks, like the Suffolk Bank of Boston, acted like central banks, lending reserves to other banks, and alleviated the effects of the Panic of 1837 in New England. Although Van Buren did not engender the Panic of 1837, he was harshly judged (and failed to be re-elected) because he was ideologically committed to keeping the government out of banking regulation, a resolve that many economic historians feel extended the effects of the Panic (while others consider his approach to have minimised potentially destructive interference), which was not over until 1843. Van Buren even kept Jackson's Secretary of the Treasury, Levi Woodbury. Economist Milton Friedman explains (1960 p 10):

The banking panic of 1837 was followed by exceedingly disturbed economic conditions and a long contraction to 1843 that was interrupted only by a brief recovery from 1838 to 1839. This Great Depression is particularly interesting for our purposes. It is the only depression on record comparable in severity and scope to the Great Depression of the 1930s, and its monetary concomitants largely duplicate those of its later mate. In both, a substantial fraction of the banks in the United States went out of existence through suspension or merger --around one quarter in the earlier and over one-third in the later contraction--and the stock of money fell by about one-third. There is no other contraction that even closely approaches this dismal record. In both cases, erratic or unwise governmental policy with respect to money played an important part.

Narrative history

THE PANIC OF 1837 BY EDWARD M. SHEPARD from Shepard, Life of Martin Van Buren (Boston: Houghton, Mifflin Company. 1888), copyright expired)

On March 4 1837....Van Buren's inaugural address began again with the favorite touch of humility, but it now had an agreeable dignity. He was, he said, the first President born after the Revolution; he belonged to a later age than his illustrious predecessors. Nor ought he to expect his countrymen to weigh his actions with the same kind and partial hand which they had used toward worthies of Revolutionary times. But he piously looked for the sustaining support of Providence, and the kindness of a people who had never yet deserted a public servant honestly laboring in their cause. . . .

The lucid optimism of the speech was in perfect temper with this one of those shining and mellow days which even March now and then brings to Washington. But there was latent in the atmosphere a storm, carrying with it a furious and complete devastation. The profoundly thrilling and hidden delight which comes with the first taste of supreme power, even to the experienced and battered man of affairs, had been enjoyed by Van Buren only a few days, when the air grew heavy about him, and then perturbed, and then violently agitated, until in two months broke fiercely and beyond all restraint the most terrific of commercial convulsions in the United States. Since Washington began the experiment of our Federal Government amid the sullen doubts of extreme Federalists and extreme Democrats, no President, save only Abraham Lincoln, has had to face at the outset of his Presidency so appalling a political situation.

The causes of the panic of 1837 lay far deeper than in the complex processes of banking or in the faults of Federal administration of the finances. But, as a man suddenly ill prefers to find for his ailment some recent and obvious cause, and is not convinced by even a long and dangerous sickness that its origin lay in old and continued habits of life, so the greater part of the American people and of their leaders believed this extraordinary crisis to be the result of financial blunders of Jackson's administration. They believed that Van Buren could with a few strokes of his pen repair, if he pleased, those blunders, and restore commercial confidence and prosperity. The panic of 1837 became, and has very largely remained, the subject of political and partizan differences, which obscure its real phenomena and causes. The farseeing and patriotic intrepidity with which Van Buren met its almost overwhelming difficulties is really the crown of his political carer. Fairly to appreciate the service he then rendered his country, the causes of this famous crisis must be attentively considered.

In 1819, the United States suffered from commercial and financial derangement, which may be assumed to have been the effect of the second war with Great Britain, The enormous waste of a great war carried on by a highly organized nation is apt not to become obvious in general business distress until some time after the war has ended. A buoyant extravagance in living and in commercial and manufacturing ventures will continue after a peace has brought its extraordinary promises, upon the faith of which, and in joyful ignorance, the evil and inevitable day is postponed. All this was seen later and on a vaster scale from 1865 to 1873.

In 1821, the country had quite recovered from its depression; and from this time on to near the end of Jackson's administration the United States saw a material prosperity, doubtless greater than any before known. The exuberant outburst of John Quincy Adams' message of 1827—that the productions of our soil, the exchanges of our commerce, the vivifying labors of human industry, had combined "to mingle in our cup a portion of enjoyment as large and liberal as the indulgence of Heaven has perhaps ever granted to the imperfect state of man upon earth"—was in the usual tone of the public utterances of our Presidents from 1821 to 1837. Our harvests were always great. We were a chosen people delighting in reminders from our rulers of our prosperity, and not restless under their pious urgency of perennial gratitude to Providence. In 1821 the national debt had slightly increased, reaching upward of $90,000,000; but from that time its steady and rapid payment went on until it was all discharged 1834. Our cities grew. Our population stretched eagerly out into the rich Mississippi valley.

From a population of ten millions in 1821, we reached sixteen millions in 1837. New York from about 1,400,000, became 2,200,000; and Pennsylvania from about 1,000,000, became 1,600,000. But the amazing growth was at the West—Illinois from 60,000 to 400,000, Indiana from 170,000 to 600,000, Ohio from 600,000 to 1,400,000, Tennessee from 450,000 to 800,000. Missouri had increased her 70,000 five-fold; Mississippi her 80,000 fourfold; Michigan her 10,000 twenty-fold. Iowa and Wisconsin were entirely unsettled in 1821; in 1837 the fertile lands of the former maintained nearly forty thousand and of the latter nearly thirty thousand hardy citizens. New towns and cities rose with magical rapidity. With much that was unlovely there was also exhibited an amazing energy and capacity for increase in wealth. . . .

Roads, canals, river improvements, preceded, attended, followed these sudden settlements, this vast and jubilant movement of population. There was an extraordinary growth of "internal improvements." In his message of 1831, Jackson rejoiced at the high wages earned by laborers in the construction of these works, which he truly said were "extending with unprecedented rapidity." The constitutional power of the Federal Government to promote the improvements within the States became a serious question, because the improvements proposed were upon so vast a scale. No single interest had for fifteen years before 1837 held so large a part of American attention as did the making of canals and roads. The debates of Congress and legislatures, the messages of Presidents and governors, were full of it. If the Erie Canal, finished in 1825, had rendered vast natural resources available, and had made its chief builder famous, why should not like schemes prosper further west? The success of railroads was already established; and there was indefinite promise in the extensions of them already planned. In 1830 twenty-three miles had been constructed; in 1831 ninety-four miles; and in 1836 the total construction had risen to 1,273 miles (2049 km). . . .

The American people with one consent gave themselves to an amazing extravagance of land speculation. The Eden which Martin Chuzzlewit saw in later material decay was to be found in the new country on almost every stream to the east of the Mississippi, and on many streams west of it, where flatboats could be floated. Frauds there doubtless were; but they were incidental to the honest delusion of intelligent men inspired by the most extraordinary growth the world had seen. The often quoted illustration of Mobile, the valuation of whose real estate rose from $1,294,810 in 1831, to $27,482,961, in 1837, to sink again in 1846 to $8,638,250, not unfairly tells the story. In Pensacola, lots which to-day are worth $50 each, were sold for as much as lots on Fifth Avenue, in New York, which to-day are worth $100,000 apiece. Real estate in the latter city was assessed in 1836 at more than it was in the greatly larger and richer city of fifteen years later. From 1830 to 1837 the steamboat tonnage on the Western rivers rose from 63,053 to 253,661. From 1833 to 1837 the cotton crop of the newer slave States, Tennessee, Alabama, Mississippi, Louisiana, Arkansas, and Florida, increased from 536,450 to 916,960 bales, while the price with fluctuations rose from ten to twenty cents a pound. . . .

The price of public lands was fixt by law at $1.25 an acre; and they were open to any purchaser, without the wholesome limits of area and the restraint to actual settlers which were afterward established. Here then was a commodity whose price to wholesale purchasers did not rise, and the very commodity by which so many fortunes had been made. In public lands, therefore, the fury of money-getting, the boastful confidence in the future of the country, reached their climax. From 1820 to 1829 the annual sales had averaged less than $1,300,000, in 1829 being $1,517,175. But in 1830 they exceeded $2,300,000, in 1831 $3,200,000, in 1832 $2,600,000, in 1833 $3,900,000, and in 1834 $4,800,000. In 1835 they suddenly mounted to $14,757,600, and in 1836 to $24,877,179. In his messages of 1829 and 1830 Jackson not unreasonably treated the moderate increase in the sales as a proof of increasing prosperity. In 1831 his congratulations were hushed; but in 1835 he again fancied, even in the abnormal sales of that year, only an ampler proof of ampler prosperity. In 1836 he at last saw that tremendous speculation was the true significance of the enormous increase. Prices of course went up. Everybody thought himself richer and his labor worth more.

There is no longer dispute that the prostration of business in 1837, and for several years afterward, was the perfectly natural result of the speculation which had gone before. The absurd denunciations of Van Buren by the most eminent of the Whigs for not ending the crisis by governmental interference are no longer respected. . . .

The enormous extension of bank credits during the three years before the breakdown in 1837 was rather the symptom than the cause of the disease. The fever of speculation was in the veins of the community before "kiting" began. Bank officers dwelt in the same atmosphere as did other Americans, and their sanguine extravagance in turn stimulated the universal temper of speculation.

When the United States Bank lost the government deposits, late in 1833, they amounted to a little less than $10,000,000. On January 1 1835, more than a year after the State banks took the deposits, they had increased to a little more than $10,000,000. But the public debt being then paid and the outgo of money thus checked, the deposits had by January 1 1836, reached $25,000,000, and by June 1 1836, $41,500,000. This enormous advance represented the sudden increase in the sales of public lands, which were paid for in bank paper, which in turn formed the bulk of the government deposits. The deposits were with only a small part of the six hundred and more State banks then in existence. But the increase in the sales of public lands was the result of all the organic causes and of all the long train of events which had seated the fever of speculation so profoundly in the American character of the day. To those causes and events must ultimately be ascribed the extension of bank credits so far as it immediately arose out of the increase of government deposits. Nor is there any sufficient reason to suppose that if the deposits, instead of being in fifty State banks, had remained in the United States Bank and its branches, the tendency to speculation would have been less. The influences which surrounded that bank were the very influences most completely subject to the popular mania.

But the increase of government deposits was only fuel added to the flames. The craze for banks and credits was unbounded before the removal of the deposits had taken place, and before their great increase could have had serious effect. Between 1830 and January 1 1834, the banking capital of the United States had risen from $61,000,000 to about $200,000,000; the loans and discounts of the banks from $200,000,000 to $324,000,000; and their note circulation from $61,000,000 to $95,000,000. The increase from January 1 1834, to January 1 1836, was even more rapid, the banking capital advancing in the two years to $251,000,000, the loans and discounts to $457,000,000, and the note circulation to $140,000,000. But there was certainty of disaster in the abnormal growth from 1830 to 1834. The insanity of speculation was in ample tho unobserved control of the country while Nicholas Biddle still controlled the deposits, and was certain to reach a climax: whether they stayed with him or went elsewhere.

It is difficult rightly to apportion among the statesmen and politicians of the time so much of blame for the mania of speculation as must go to that body of men. They had all drunk in the national intoxication over American success and growth. . . .

The great and long concealed devastation of physical wealth and of the accumulation of legitimate labor, by premature improvements and costly personal living, became now quickly apparent. Fancied wealth sank out of sight. Paper symbols of new cities and towns, canals and roads, were not only without value, but they were now plainly seen to be so. Rich men became poor men. The prices of articles in which there had been speculation sank in the reaction far below their true value. The industrious and the prudent, who had given their labor and their real wealth for paper promises issued upon the credit of seemingly assured fortunes, suffered at once with men whose fortunes had never been anything better than the delusions of their hope and imagination.

It is now plain enough that to recover from this crisis was a work of physical reparation to which must go time, industry, and frugality. There was folly in every effort to retain and use as valuable assets the investments in companies and banks whose usefulness, if it had ever begun, was now ended. There was folly in every effort to conceal from the world by words of hopefulness the fact that the imagined values in new cities and garden lands had disappeared in a rude disenchantment as complete as that of Abou-Hassan in the "Thousand and One Nights," or that of Sly, the tinker, left untold in the "Taming of the Shrew." Their sites were no more than wild lands, whose value must wait the march of American progress, fast enough indeed to the rest of the world, but slow as the snail to the wild pacing of the speculators. Every pretense of a politician, whether in or out of the Senate chamber, that the government could by devices of financiering avoid this necessity of long physical repair, was either folly or wickedness. And of this folly or even wickedness there was no lack in the anxious spring and summer of 1837.

There had already occurred in many quarters that misery which is borne by the humbler producers of wealth not for their own consumption, but simply for exchange, whose earnings are not creased to meet the inflation of prices upon which traders and speculators are accumulating apparent fortunes and spending them as if they were real. On February 14 1837, several thousand people met in front of the City Hall in New York under a call of men whom the Commercial Advertiser described as "Jackson Jacobins." The call was headed: "Bread, meat, rent, fuel! Their prices must come down!" It invited the presence of "all friends of humanity determined to resist monopolists and extortionists." A very respectable meeting about high prices had been held two or three weeks before at the Broadway Tabernacle. The meeting in the City Hall Park, with a mixture of wisdom and folly, urged the prohibition of banknotes under $100, and called for gold and silver; and then denounced landlords and dealers in provisions. The excitement of the meeting was followed by a riot, in which a great flour warehouse was gutted. The rioters were chiefly foreigners and few in number; nor were the promoters of the meeting involved in the riot. The military were called out; and Eli Hart & Co., the unfortunate flour merchants, issued a card pointing out with grim truth "that the destruction of the article can not have a tendency to reduce the price."

Commercial failures began in New York about April 1. By April 8 nearly one hundred failures had occurred in that city—five of foreign and exchange brokers, thirty of dry-goods jobbers, sixteen of commission houses, twenty-eight of real-estate speculators, eight of stock-brokers, and several others. Three days later the failures had reached one hundred and twenty-eight. Provisions, wages, rents, everything, as the New York Herald on that day announced, were coming down. Within a few days more the failures were too numerous to be specially noticed; and before the end of the month the rest of the country was in a like condition. The prostration in the newer cotton States was peculiarly complete. Their staple was now down to ten cents a pound; within a year it had been worth twenty. All other staples fell enormously in price. . . .

When Congress assembled, the country had cried itself, if not to sleep, at least to seeming quiet. The sun had not ceased to rise and set. Although merchants and bankers were prostrate with anxiety or even in irremediable ruin; although thousands of clerks and laborers were out of employment or earning absurdly low wages—for near New York hundreds of laborers were rejected who applied for work at four dollars a month and board; although honest frontiersmen found themselves hopelessly isolated in a wilderness—for the frontier had suddenly shrunk far behind them—still the harvest had been good, the masses of men had been at work, and economy had prevailed. The desperation was over. But there was a profound melancholy, from which a recovery was to come only too soon to be lasting. . . .

Another year, Van Buren now hoped, would bring a complete recovery from the blow of 1837. But the autumn of 1839 had also brought a blast, to grow more and more chilling and disastrous. In the early fall the Bank of the United States agreed to loan Pennsylvania $2,000,000; and for the loan obtained the privilege of issuing $5 notes, having before been restricted to notes of $20 and upward. "Thus has the Van Buren State of Pennsylvania," it was boasted, "enabled the banks to overcome the reckless system of a Van Buren national administration." The price of cotton, which had risen to 16 cents a pound, fell in the summer of 1839, and in 1840 touched as low a point as 5 cents. In the Northwest many banks had not yet resumed since 1837. To avoid execution sales it was said that two hundred plantations had been abandoned and their slaves taken to Texas. The sheriff, instead of the ancient return, nulla bona, was said, in the grim sport of the frontier, to indorse on the fruitless writs "G. T.," meaning "Gone to Texas."

A money stringency again appeared in England, in 1839. Its exportation of goods and money to America had again become enormous. The customs duties collected in 1839 were over $23,000,000, and about the same as they had been in 1836, having fallen in 1837 to $11,000,000, and afterward in 1840 falling to $13,000,000. Speculation revived, the land sales exceeding $7,000,000 in 1839, while they had been $3,700,000 in 1838, and afterward fell to $3,000,000 in 1840. Under the pressure from England the Bank of the United States sank with a crash. . . .

Although the excitement of 1839 did not equal that of 1837, there was a duller and completer despondency. It was at last known that the recuperative power of even our own proud and bounding country had limits. Years were yet necessary to a recovery.

Notes

1. ^ [1]

References

  • Curtis, James C. The Fox at Bay: Martin Van Buren and the Presidency, 1837-1841 (1970), pp 64-151.
  • Kaplan, Edward S.The Bank of the United States and the American Economy (1999).
  • Milton Friedman; A Program for Monetary Stability 1960.
  • McGrane, Reginald Charles. The Panic of 1837 (1924).
  • Rousseau, Peter L. Jacksonian Monetary Policy, Specie Flows, and the Panic of 1837. Journal of Economic History 2002 62(2): 457-488.
  • Schweikart, Larry. Banking in the American South from the Age of Jackson to Reconstruction (1987).

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