At the end of Andrew Jackson’s presidency the United States was hurtling towards an economic crash. The significance of what is now known as the Panic of 1837 is just how devastating it was for the economy, which took years to recover.
Hundreds of banks failed, businesses closed, unemployment skyrocketed, and international trade ground to a halt. Many prominent citizens were ruined in the crisis and the common man suffered as life savings became worthless.
It was not the first economic crisis the nation endured. Many Americans distinctly remembered the crushing effects of the Panic of 1819 two decades earlier.
Despite the prior economic crash, few were prepared for the even worse impacts of the Panic of 1837. It was preceded by one of the most prosperous periods in American history, leaving citizens shocked when the tide turned so quickly.
Historians debate the causes, though most agree it was some combination of former President Andrew Jackson’s policies as well as a larger global financial panic that produced the crisis.
The Panic of 1837 ultimately has great historical significance in that it helped usher in the rise of the Whig party and introduced Americans to the boom/bust cycle of a capitalist market economy.
What Was the Panic of 1837?
The Panic of 1837 was a major economic depression sparked by a financial crisis in the United States that led to numerous deleterious effects. The depression lasted well into the mid-1840s and left deep scars on the American populace.
The financial crisis led to mass unemployment, particularly in the manufacturing sector, business and personal bankruptcies, and hundreds of bank closing their doors. Domestic and international trade was greatly interrupted and the populace was left debt-ridden and downtrodden.1
The years prior to the crisis were incredibly prosperous. Money was easy to come by and investments flowed into the United States as an emerging market.
The completion of the Erie Canal helped ease and cheapen travel and transport to the west and gave midwestern farmers access to eastern and international markets. Increased westward settlement spurred additional land sales that led to massive federal revenues.2
Westward migration was aided by the effects of the Indian Removal Act of 1830 that opened up millions of acres of land formerly occupied by Native Americans.
The revenue from land sales was a major reason President Andrew Jackson was able to pay off the national debt—the last time it has happened in US history.
Despite the general euphoria around an economic boom, the US economy was hurtling towards disaster. Lax lending practices by state banks led to an increase in the money supply that spurred massive inflation.
Andrew Jackson’s policies such as the Specie Circular and Deposit Act of 1836 were major causes of the Panic of 1837. While these were intended to help curb inflation, in effect they drained major east coast banks of critical specie reserves just when they needed them most.
Despite Jackson’s role, his successor, Martin Van Buren, is often stuck with the blame for the economic depression.
Effects of the Panic of 1837
There were a number of negative effects that resulted from the Panic of 1837 that included high unemployment, a collapse in land prices, bankruptcies for businesses, bank closures, and high levels of personal debt.
The crisis affected the common man greatly as the lifelong savings of many were wiped away in an instant. Societal impacts were numerous as some could not fathom the depths of the depression and lost everything.
High unemployment was typically limited to areas where manufacturing was present. As the United States was still largely agrarian at the time, unemployment was not nearly as high as during the Great Depression some hundred years later.
However, the pain was not limited to factory workers. A sharp drop in cotton prices that preceded the panic ruined many southern cotton plantation owners.3
Land speculators that prospered greatly in the years prior also were hit hard by the general drop in land prices. Unproductive land became undesirable overnight, and those that speculated on these lands generally did not have the money on hand to pay their debts when called upon.2
Those that could not pay incurred large debts. Many either filed for bankruptcy or fled to Texas which had recently won its independence in the Texas Revolution.
Much of the land speculation involved land recently opened to white settlers from the Indian Removal Act. These were prime cotton-growing lands in the south that helped pave the way for the expansion of slavery.
One of the biggest effects of the Panic of 1837 was the closure of hundreds of state banks across the nation. Economic historian Peter L Rousseau tallied 194 bank closures of the 729 banks with charters in 1837.3
The bank closures led to drastic price decreases as banks suspended specie payments and some paper money became effectively worthless.
Differences Between the Panic of 1819 and 1837
The primary differences between the Panic of 1819 and 1837 were the role of the National Bank and the federal government in the onset of the two financial crises.
Of the many causes of the Panic of 1819, the Second National Bank of the United States played a significant role. Its inability to properly control the availability of credit helped lead to a period of high inflation that quickly grew out of control.
Once it realized its mistake, the Bank quickly contracted credit, pulling the rug out from under the economy and leading to the financial panic. The mishandling of the economy led to a decrease in public confidence in the National Bank.
Andrew Jackson emerged as a political contender running on a platform to destroy the National Bank. Jackson succeeded in his campaign promise, vetoing the National Bank’s renewal charter in the important 1832 Bank War.
In the National Bank’s stead, Jackson deposited federal revenues in various state banks called “pet banks.” After just a few years, these pet banks failed to control inflation, helping to cause the rampant land speculation and inflationary bubble.
The lack of a central, national bank to help unify banking policy across the various state banks impeded the hopes of a quick recovery in the Panic of 1837.
Another major difference between the two panics was the action of the President and Congress. In 1819 President James Monroe and his Congress was very hands-off and allowed the National Bank to course-correct and the economy to sort itself out with little to no executive legislative action.
Meanwhile, executive and legislative action in the form of the Specie Circular and Deposit Act of 1836 were prime contributors to the 1837 financial crisis. The policies helped drain eastern banks of critical specie reserves just when they were most needed to protect against the global trade slowdown.3
Once the panic gripped the economy there was no national bank to be a scapegoat. Historians widely condemn president Martin Van Buren’s laissez-faire approach.
He did advocate for an Independent Treasury to help matters, though the measure did not pass Congress until his last year in office.4
The Significance of the Panic of 1837
The Panic of 1837 holds great historical significance as one of the worst financial crises in US history prior to the Great Depression in the 1930s.
The panic had a ripple effect through American society and played a major role in shaping several significant events.
At the same time as the financial crisis gripped the nation, the federal government was finishing its mission to remove the Five Civilized Tribes to the Oklahoma Territory. The Cherokee Nation was the last to be removed after their hope that the fraudulent Treaty of New Echota would be annulled.
The forced removal of the Cherokee is a black stain on American history and their removal is known as the Trail of Tears. Thousands died along the march west as the army was poorly provisioned and not prepared.
Part of the blame could be shared by the Panic of 1837. As some paper money became worthless, many vendors for provisions would only accept specie for payment, which was in short supply.
The financial crisis helped lead to great suffering for the Cherokee and contributed to the thousands of deaths along the trail.
The panic also helped lead to the beginnings of the migration to the far west along the Oregon Trail. Many debt-ridden citizens were in search of a new start, and the far away territory offered just that.
On the political spectrum the Panic of 1837 contributed to the end of the so-called Jacksonian Era as Martin Van Buren was trounced in the election of 1840.
The election saw the first candidate from the Whig Party, William Henry Harrison—the hero of the 1811 Battle of Tippecanoe—elected President. The Whigs were all too eager to place the blame for the nation’s woes on Van Buren and rode that platform to victory.4
The significance of the Panic of 1837 was its devastation on the US economy. However, it would eventually recover and prosper, particularly once the discovery of gold led to the California Gold Rush in the late 1840s.
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To learn more about US history, check out this timeline of the history of the United States.
Sources
1) Rezneck, Samuel. “The Social History of an American Depression, 1837-1843.” The American Historical Review, vol. 40, no. 4, 1935, pp. 662–87. JSTOR, https://doi.org/10.2307/1842418.
2) “Reflections of the 1837 Panic.” Bulletin of the Business Historical Society, vol. 7, no. 4, 1933, pp. 6–10. JSTOR, https://doi.org/10.2307/3110974.
3) Rousseau, Peter L. “Jacksonian Monetary Policy, Specie Flows, and the Panic of 1837.” The Journal of Economic History, vol. 62, no. 2, 2002, pp. 457–88. JSTOR, http://www.jstor.org/stable/2698187.
4) Havens, R. Murray. “Reactions of the Federal Government to the 1837-1843 Depression.” Southern Economic Journal, vol. 8, no. 3, 1942, pp. 380–90. JSTOR, https://doi.org/10.2307/1052616.
