During 1833 and 1834 Secretary of the Treasury Taney insisted that the pet banks maintain large reserves. But other state banks began to offer credit on easy terms, aided by a large increase in their reserves of gold and silver resulting from causes unconnected with the policies of either the government or Biddle’s Bank. A decline in the Chinese demand for Mexican silver led to increased exports of the metal to the United States, and the rise of American interest rates attracted English capital into the country. Heavy English purchases of American cotton at high prices also increased the flow of specie into American banks. These developments caused bank notes in circulation to jump from $82 million in January 1835 to $120 million in December 1836. Bank deposits rose even more rapidly.
Much of the new money flowed into speculation in land; a mania to invest in property swept the country. The increased volume of currency caused prices to soar 15 percent in six months, buoying investors’ spirits and making them ever more optimistic about the future. By the summer of 1835 one observer estimated that in New York City, which had about 250,000 residents, enough house lots had been laid out and sold to support a population of 2 million. Chicago at this time had only
2,000 to 3,000 inhabitants, yet most of the land for twenty-five miles around had been sold and resold in small lots by speculators anticipating the growth of the area. Throughout the West farmers borrowed money from local banks by mortgaging their land, used the money to buy more land from the government, and then borrowed still more money from the banks on the strength of their new deeds.
So long as prices rose, the process could be repeated endlessly. In 1832, while the Bank of the United States still regulated the money supply, federal income from the sale of land was $2.6 million; in 1834 it was $4.9 million; and in 1835, $14.8 million. In 1836 it rose to $24.9 million, and the government found itself totally free of debt and with a surplus of $20 million!
Finally Jackson became alarmed by the speculative mania. In the summer of 1836 he issued the Specie Circular, which provided that purchasers must henceforth pay for public land in gold or silver. At once the rush to buy land came to a halt. As demand slackened, prices sagged. Speculators, unable to dispose of lands mortgaged to the banks, had to abandon them to the banks, but the banks could not realize enough on the foreclosed property to recover their loans. Suddenly the public mood changed. Commodity prices tumbled 30 percent between February and May. Hordes of depositors sought to withdraw their money in the form of specie, and soon the banks exhausted their supplies. Panic swept the country in the spring of 1837 as every bank in the nation was forced to suspend specie payments. The boom was over.
Major swings in the business cycle can never be attributed to the actions of a single person, however powerful, but there is no doubt that Jackson’s war against the Bank exaggerated the swings of the economic pendulum, not so much by its direct effects as by the impact of the president’s ill-considered policies on popular thinking. His Specie Circular did not prevent speculators from buying land—at most it caused purchasers to pay a premium for gold or silver. But it convinced potential buyers that the boom was going to end and led them to make decisions that in fact ended it. Old Hickory’s combination of impetuousness, combativeness, arrogance, and ignorance rendered the nation he loved so dearly a serious disservice.
World History
