The panic of 1837 brought to an end an extended economic boom, one of the most productive in the history of the United States. It began in the 1820s, when British investors poured large amounts of capital into American canals in the North, as well as into Southern cotton, and basic commodities tripled in price. The nation’s economy was undergoing a transformation that had accelerated in the decades since the War of 1812, one marked by the development of an interconnected market and a workforce characterized more and more by wage labor. During the boom, there was a rage for speculation and credit, and it began to spin out of control.
One effort by the federal government to discourage speculation, which was blamed by some for rising inflation, was to issue the so-called Specie Circular in 1836. Drawn up by Senator Thomas Hart Benton of Missouri and issued as an executive order by President Andrew Jackson over the objections of the Whig Party, the Specie Circular mandated that only specie—i. e., gold and sil-ver—would be acceptable payment for public lands. This was essentially an effort to end speculation with banknotes and allow ordinary people a better chance to buy land. The result, however, was that specie became harder to come by, especially in the Northeast, and it went west to pay for lands.
Another potential economic problem was rooted in the Bank War of 1832, which had resulted in the expiration of the charter of the Second Bank of the United States in 1836. This took away a major force against runaway credit, and therefore inflation had increased because state and local banks were issuing too many notes.
The boom reached its peak between 1834-37, but some saw danger in all of the speculation and easy credit. One skeptic famously asked “When Will the Bubble Burst?” One of the first signs of trouble on the economic horizon was a series of crop failures in the United States, beginning in 1835; as a result, farmers could not repay their bank loans. As agriculture began to decline, the international balance of trade began to work against the United States. In the South, cotton firms began to fail and agricultural production in general slipped. Overexpansion had led to great amounts of debt and bad currency. Overtrading on Wall Street had led to a real-estate boom that also began to bust.
Although these domestic factors all played a role in the onset of the panic, it appears that its most important causes originated overseas. There came to be concern in London over the increased export of specie, especially gold, from their vaults to the United States. The Bank of England therefore decided to restrict the outflow of specie to the United States and demand the payment of specie that was owed to them. It also rather suddenly ceased granting credit to English firms doing business with their American counterparts. At the same time, a poor harvest in England caused a dip in the demand for American cotton, probably the most important commodity in the United States. These developments in England, which was the center of the Western world’s financial system, contributed to a collapse of world prices that affected many sectors of the U. S. ECONOMY. Banks began to suspend specie payments in spring 1837, meaning they would not redeem any paper notes for gold or silver. This helped to create a panic, as investors were fearful of losing their savings and rushed to withdraw them from the banks. As paper money became devalued, the notes in which workers were paid lost much of their purchasing power.
By early 1837, business failures had begun to mount. The distress was especially devastating in northern cities. Commerce and transportation declined; most construction, an important source of jobs, ceased; and goods went unsold. Wage-dependent workers in the new economy were especially vulnerable. Some of them were thrown out of their homes when they could not pay rent, and moved into cellars and basements. There were food riots that were reminiscent of colonial times. As the number of unemployed and food prices both soared, there was looting of bakeries and shops. In the South, cotton plantations were sold on the market for only 10 percent of their original price. To make matters even worse, hopes for economic recovery and a relatively brief panic were dashed in 1839, as another wave of business failures, unemployment, and general economic suffering hit the nation.
In response to the crisis, radical antibank Democrats, known as the Locofocos, began to call for hard currency so that workers and farmers could pay their debts, while Whigs and conservative Democrats called for paper money to ease the panic. There were many accusations in Washington over who was responsible for the panic. Whigs cried “Locofocoism” and blamed Democrats and their economic policies during the Jackson presidency; the Democrats pointed the finger at the now-defunct Bank of the United States. The initial response of President Martin Van Buren, who had taken office in 1837 just as the crisis was deepening, was that the panic was a healthy corrective to an overheated economy. He steadfastly refused to provide federal funds to relieve the distress caused by panic. Van Buren did eventually propose a policy known as the independent treasuries, or subtreasury. It called for the federal government to take its funds out of the banking system altogether and place them in government vaults. The idea behind this policy was that it would keep the federal government out of reach of economic elites and eliminate government-backed speculation in public lands. There was much opposition to this plan, both among the Whigs and the more business-minded Democrats, but Congress eventually passed it in 1840.
The impact of the panics of the late 1830s was such that general economic prosperity did not return until about 1844. Among the long-range consequences of the economic crisis was that labor organizations, which had begun to form in the late 1820s and early 1830s, essentially collapsed in the face of a massive loss of bargaining power and would not return in force until after the Civil War. The Democratic Party, which lost the White House in 1840 because the Whigs were able to blame them for the nation’s economic troubles, in the future would be reluctant to pursue antibank and anticredit policies which, rightly or wrongly, had cost them so much politically. Debates over these issues would also soon be supplanted by the growing controversy brought by expansion, as the United States once and for all confronted the question of SLAVERY.
Further reading: Peter Temin, The Jacksonian Economy (New York: W. W. Norton, 1969); Richard H. Timberlake, Jr., “The Specie Circular and the Distribution of the Surplus.” Journal of the Political Economy, 1980; Sean Wilentz, Chants Democratic: New York City and the Rise of the American Working Class, 1788-1850 (New York: Oxford University Press, 1984).
—Jason Duncan
Panic of 1857 See Volume V.
Paul, Nathaniel (ca. 1793-1839) abolitionist, minister Nathaniel Paul, an African-American abolitionist minister, was a pioneering voice for the black community. Paul was born in Exeter, New Hampshire, around 1793, the son of a Revolutionary War veteran. He attended a school run by the Free Baptist Church. In 1820 he founded the Albany African Church Association in Albany, New York. Paul was a charismatic speaker who attracted large audiences, and he used the pulpit to advocate education and self-improvement as a means out of poverty and discrimination. To this end he served as founder and president of the Union Society of Albany for the Improvement of the Colored People in Morals, Education, and the Mechanical Arts.
Paul was also active in publishing and contributed regularly to newspapers such as Freedom’s Journal and The Rights of All. In his writings he attacked both slavery and the efforts of the American Colonization Society. Nonetheless, in 1830 Paul himself migrated to a free black community in Canada at Wilberforce, Ontario, where he served as pastor. In 1831 he visited England to raise money for a manual training college in Wilberforce, and he spent the next five years lecturing and preaching in concert with British and Irish abolitionist figures, as well as William Lloyd Garrison. Paul remained in England six years and raised $8,000, but because the expenses he incurred ran upward of $7,000, he refused to hand over the money to the Wilberforce community. He was then driven from the community, which failed soon after, and he renewed his residency in Albany as pastor of the Hamilton Street Baptist Church. Paul died there on July 17, 1839.
Further reading: Milton C. Sernett, North Star Country: Upstate New York and the Crusade for African American Freedom (Syracuse, N. Y.: Syracuse University Press, 2002); Jacqueline Tobin, From Midnight to Dawn: The Last Tracks of the Underground Railroad (New York: Doubleday, 2007).
—John C. Fredriksen
World History
