Panic of 1837 Begins Summary

  • Last updated on November 10, 2022

The Panic of 1837 was brought about by U.S. president Andrew Jackson’s attempts to control runaway land speculation. It affected the American economy over the next six years, resulted in the failure of many banks, and caused extensive unemployment throughout the country.

Summary of Event

Andrew Jackson was president of the United States from 1829 until 1837. The so-called Jacksonian Democracy attracted the masses because of its emphasis on improving the lot of working people. Jackson, who practiced law in western North Carolina in the late eighteenth century, was ruined financially by the Panic of 1795, but he recovered sufficiently to become a force in American politics. His personal difficulties resulting from this panic, however, shaped forever his views of the economic and business cycles of the United States. Panic of 1837 Jackson, Andrew Jackson, Andrew [p]Jackson, Andrew;and Panic of 1837[Panic of 1837] Biddle, Nicholas Biddle, Nicholas [p]Biddle, Nicholas;and Panic of 1837[Panic of 1837] [kw]Panic of 1837 Begins (Mar. 17, 1837) [kw]1837 Begins, Panic of (Mar. 17, 1837) [kw]Begins, Panic of 1837 (Mar. 17, 1837) Panic of 1837 Jackson, Andrew Jackson, Andrew [p]Jackson, Andrew;and Panic of 1837[Panic of 1837] Biddle, Nicholas Biddle, Nicholas [p]Biddle, Nicholas;and Panic of 1837[Panic of 1837] [g]United States;Mar. 17, 1837: Panic of 1837 Begins[2000] [c]Economics;Mar. 17, 1837: Panic of 1837 Begins[2000] [c]Banking and finance;Mar. 17, 1837: Panic of 1837 Begins[2000] [c]Government and politics;Mar. 17, 1837: Panic of 1837 Begins[2000] Calhoun, John C. Calhoun, John C. [p]Calhoun, John C.;and Panic of 1837[Panic of 1837] Webster, Daniel Webster, Daniel [p]Webster, Daniel;and Panic of 1837[Panic of 1837] Clay, Henry Clay, Henry [p]Clay, Henry;and Panic of 1837[Panic of 1837]

A number of personal animosities among Jackson and several prominent politicians and businessmen preceded and contributed to the Panic of 1837. John C. Calhoun Calhoun, John C. Calhoun, John C. [p]Calhoun, John C.;and Panic of 1837[Panic of 1837] , Jackson’s vice president, resigned the vice presidency in 1832 because of the president’s insistence that Calhoun’s state, South Carolina, like all the other states, impose tariffs Tariffs;U.S. to which much of the South objected strenuously. In November, 1832, South Carolina held a convention in which it nullified the tariff that they labeled the Tariff of Abomination. On the following December 10, Jackson issued his Proclamation to the People of South Carolina, declaring that any resistance to the tariff within the individual states constituted treason.

Contemporary cartoon depicting the problems caused by the Panic of 1837, while implicitly laying blame on the treasury policies of President Andrew Jackson, whose hat, glasses, and clay pipe appear in the sky, along with the word “Glory.”

(Library of Congress)

Upon resigning his vice presidency in protest against this proclamation, Calhoun was elected to the United States Senate, where he joined with Henry Clay Clay, Henry Clay, Henry [p]Clay, Henry;and Panic of 1837[Panic of 1837] , Daniel Webster Webster, Daniel Webster, Daniel [p]Webster, Daniel;and Panic of 1837[Panic of 1837] , and others labeled “Calhoun Calhoun, John C. Calhoun, John C. [p]Calhoun, John C.;and Panic of 1837[Panic of 1837] Democrats” to undermine Jackson’s resolute efforts to move forward with the imposition of the dreaded tariff. A compromise was reached, largely through the intervention of Clay, but the Jackson administration was weakened by this conflict, which brought the nation close to civil war.

The 1830’s had begun in the United States as a prosperous decade. Land speculators made a great deal of money purchasing government land that they were able to resell within a short time for much more than their purchase price. Inflation was evident, as the government printed increasing amounts of paper money, which was presumed to be backed by hard metal reserves in gold and silver.

Nicholas Biddle of Philadelphia, the leading American banker and president of the Second Bank of the United States, was riding on the crest of a financial wave that was quickly reaching its apogee. The influence that the banking industry appeared to be gaining alarmed Jackson, because it concentrated enormous economic power in the hands of nongovernmental agencies, notably the all-powerful private banks. To limit this perceived threat, Jackson took punitive action against Biddle’s bank, using the excuse that the bank was not establishing a solid paper currency Currency;U.S. based on gold and silver. His motive was to drive the Second Bank of the United States out of business.

After Jackson refused to renew the bank’s charter when it came up for renewal in 1836, Biddle reacted by moving his operation to the Commonwealth of Pennsylvania, Pennsylvania;banks which quickly granted the bank a charter that the U.S. government could not negate. Under this arrangement, Biddle greatly increased his bank’s activities. He capitalized on the surging land boom, in which uncommonly high profits were still being made.

Jackson took two decisive actions that brought Biddle’s retaliatory efforts to a screeching halt. As currency Currency;U.S. notes, supposedly backed by gold and silver, were issued as paper money, the demand for money to finance land speculation grew exponentially. By 1836, the 634 banks in the United States had on their books loans in the amount of $525 million. The hard currency backing these loans was valued at $38 million, and its value was rapidly being eroded further by the increased production of still more currency notes not backed by precious metal.

To counteract this increasing dilution of the value of currency notes alongside increasing debt, Jackson issued a proclamation in 1836. He proclaimed that future purchases of government land could be made only in hard currency or in currency notes that were backed one hundred percent by hard currency. This decision had a profound effect on the entire nation, although the area west of the Allegheny Mountains was more severely affected by it than was the eastern seaboard, where hard currency was still more readily available than in the west. Much of the land speculation, however, was centered in the very areas where hard currency was in the shortest supply.

In the same year, Jackson also barred the deposit of federal money in Biddle’s bank. He further decreed that federal funds should be deposited in state banks that supported his efforts. These banks were dubbed “pet” banks. A further complication occurred when, late in 1836, several major mercantile companies in Great Britain declared bankruptcy, thereby reducing the market for American cotton abroad. The final blow was struck on March 17, 1837, a Friday, when it became clear that a number of the most influential cotton merchants in New Orleans, saddled with huge indebtedness and a rapidly declining foreign market for their goods, were faced with bankruptcy. As a result, banks soon were unable to meet their obligations and inevitably failed.

The reaction on Wall Street was immediate. The stock Stock market;and Panic of 1837[Panic of 1837] market on that day sank to unheard of lows, and, with the banks facing the loss of more than $200 million on failed loans, it was obvious that the American economy could not recover quickly. The panic that began on March 17 continued throughout the remainder of 1837 and extended through the presidency of Zachary Taylor, Jackson’s handpicked successor. Hard currency became extremely scarce, as gold and silver coins Coinage, U.S. virtually disappeared from circulation. Indeed, the economy did not begin its recovery decisively until late in 1842.

Significance

The Panic of 1837 was probably not inevitable. Andrew Jackson’s personal animus against Nicholas Biddle drew the two into a conflict of egos that might have been resolved through negotiation and compromise rather than through Jackson’s imposition of draconian restrictions upon the banking industry that resulted in a national economic crisis.

The land speculation of the early 1830’s needed to be curbed, possibly with some sort of modified plan to bring the borrowing of money for land speculation under greater control. Jackson’s decision to demand payment in hard currency Currency;U.S. for the purchase of government lands, however, was an extreme solution that grew out of his unfortunate vendetta against Biddle. Jackson’s refusal to renew the charter of Biddle’s bank certainly backfired when Biddle obtained a charter from the Commonwealth of Pennsylvania, an action that Jackson could certainly have anticipated and one that he was powerless to prevent.

The losers in the whole affair, as so often happens, were America’s working people, the very people who put Jackson into office for two terms as president based on his expressions of populism. Jackson very nearly brought the nation to its knees. Through his actions, he split his own Democratic Party and deepened irrevocably the breach between North and South.

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Eichengreen, Barry J. Capital Flows and Crises. Cambridge, Mass.: MIT Press, 2003. This theoretical study provides penetrating insights into recurrent financial cycles in the United States.
  • citation-type="booksimple"

    xlink:type="simple">Gilbart, James William. The History of American Banking. New York: A. M. Kelley, 1967. This somewhat dated book offers considerable information about the financial cycles that resulted in several financial panics in the United States during the nineteenth century.
  • citation-type="booksimple"

    xlink:type="simple">Kaplan, Edward S. The Bank of the United States and the American Economy. Westport, Conn.: Greenwood Press, 1999. Broad economic study of the role of the Bank of the United States in American economic history.
  • citation-type="booksimple"

    xlink:type="simple">McGrane, Reginald Charles. The Panic of 1837: Some Financial Problems of the Jacksonian Era. 1924. Reprint. New York: Russell & Russell, 1965. Among the most fruitful accounts of the Panic of 1837 and of the political motivations behind it.
  • citation-type="booksimple"

    xlink:type="simple">Mullineux, A. W. Business Cycles and Financial Crises. Ann Arbor: University of Michigan Press, 1990. In this largely theoretical study, Mullineux examines trends in business cycles and links them to the predictability of some financial crises.
  • citation-type="booksimple"

    xlink:type="simple">Schultz, Harry D. Panics and Crashes and How You Can Make Money Out of Them. New Rochelle, N.Y.: Arlington House, 1972. Although this is essentially a self-help book, its review of the financial panics that have afflicted the United States for more than two centuries offers valuable information about the Panic of 1837.
  • citation-type="booksimple"

    xlink:type="simple">Temin, Peter. The Jacksonian Economy. New York: W. W. Norton, 1969. Despite its age, this is one of the clearest accounts of the Panic of 1837 and of the economy of the Jacksonian era. Strongly recommended.
  • citation-type="booksimple"

    xlink:type="simple">Watson, Harry L. Andrew Jackson vs. Henry Clay: Democracy and Development in Antebellum America. Boston: Bedford/St. Martin’s, 1998. Dual biography, describing the two men’s conflicting visions for the future of the United States. Includes reprints of twenty-five primary documents, including speeches and letters.

Second Bank of the United States Is Chartered

U.S. Election of 1824

U.S. Election of 1828

Webster and Hayne Debate Slavery and Westward Expansion

Turner Launches Slave Insurrection

Jackson Vetoes Rechartering of the Bank of the United States

Nullification Controversy

Clay Begins American Whig Party

U.S. Election of 1840

Webster-Ashburton Treaty Settles Maine’s Canadian Border

Establishment of Independent U.S. Treasury

Congress Passes the National Bank Acts

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Nicholas Biddle; John C. Calhoun; Henry Clay; Andrew Jackson; Zachary Taylor; Daniel Webster. Panic of 1837 Jackson, Andrew Jackson, Andrew [p]Jackson, Andrew;and Panic of 1837[Panic of 1837] Biddle, Nicholas Biddle, Nicholas [p]Biddle, Nicholas;and Panic of 1837[Panic of 1837]

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