1837: Panic of 1837
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On May 10, 1837, banks in New York suspended the redemption of bank notes for specie (gold and silver), and other banks around the nation quickly followed suit. This suspension led to an immediate economic crisis, and a more lasting political upheaval.[1] This crisis was brought on by a number of preceding events, including the destruction of the United States National Bank and the subsequent transfer of deposits to numerous smaller banks, many of which responded to this windfall by overextending credit on shaky investments.[2] Many banks actually went into debt by financing too many internal improvement projects, especially in the Eastern and Southern states. This problem was compounded by the passage of the specie circular in 1836, which restricted land purchases to specie payments only. This resulted in a great deal of specie moving west across the country, causing many Eastern banks to become under-funded and hastening their collapse.[3] The emergence of a large trade deficit in the years leading up to the panic only served to worsen the problem.[4]
In the South, the impacts were felt the worst in the western cotton belt states. Internal improvement and industrialization projects were quickly scrapped, leaving their investors in debt. Cotton prices fell sharply, and many areas began to diversify agriculturally.[5] Politically, the innate problems resulting from entrusting the national treasury to independently owned and operated banks showed the need for the creation of an Independent Treasury, proposed by President Van Buren in September 1837. However, a majority of the American public blamed the Democratic policies of Andrew Jackson for the economic collapse, and as a result the Whigs were able to capture control of the Presidency in the 1840 elections.[6]
Related Events:
Specie Circular, 1836 1837: Inauguration of Martin Van Buren 1840: Presidential Election of 1840
Sources:
[1]Wilson, Major L. The Presidency of Martin Van Buren Lawrence: University Press of Kansas, 1984. p.43 [2]McGrane, Reginald Charles. The Panic of 1837. New York: Russell & Russell, 1965. p.24-25 [3]Ibid., 92. [4]Wilson, 44. [5]McGrane, 112-114 [6]Ibid., 175.
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