The Panic of 1837 was caused by land speculation fueled by easy credit, with 343 of the nation’s banks going out of business. President Andrew Jackson’s economic policies are blamed for creating the conditions. The use of banknotes and foreign investors added to inflation. The Panic was triggered when Jackson issued the Species Circular, requiring gold and silver currency for public land sales. The housing market dried up, causing widespread bankruptcy and unemployment. President Martin Van Buren called for a national treasury system, but the effects of the Panic were felt for years.
The Panic of 1837 unleashed the most severe depression experienced by the United States up to that time. Chief among the causes of the depression was a wave of land speculation, fueled by cheap and easy credit. Across the country, unemployment rose, businesses went bankrupt, and bankruptcy became commonplace. During the five years following the panic, 343 of the nation’s 850 banks went out of business completely, with another 62 experiencing partial bankruptcy.
President Andrew Jackson’s economic policies are often blamed for creating the conditions that caused the Panic of 1837. In 1829, Jackson, who distrusted the National Bank and considered it unconstitutional, refused to renew the bank’s charter. He also withdrew all federal funds, depositing them instead in state and private banks.
Consequently, credit was readily available from these institutions. State and privately funded projects such as canals and rail lines encouraged westward expansion. Speculators scrambled to purchase government properties on the cheap, hoping to sell them for a huge profit as expansion and infrastructure boosted the property’s value. Firms also relied heavily on credit, often using the earnings to finance speculative high-yield investments rather than paying off loans quickly.
Banks have been able to provide this cheap credit in part through the use of banknotes, money that they have printed themselves. Foreign investors hoped to take advantage of the US boom by adding more capital to the economy. With high levels of currency in circulation, inflation was inevitable.
Speculation drove real estate sales to record highs. By 1837, land offices were reporting sales 10 times greater than in 1830. Hoping to curb this land rush, Jackson issued the Species Circular in the summer of 1836, requiring that species—gold and silver currency—be used for all public land sales. State and private banks lacked sufficient monetary funds, usually using banknotes for loans. With credit supplies suddenly cut off, many buyers defaulted, the housing market dried up, and the Panic of 1837 was underway.
Foreign investors went into debt, refusing to accept US currency. Already overextended, bank reserves were quickly depleted. Depositors attempted to withdraw funds, causing bank runs. During the Panic of 1837, paper money became worthless as banks refused to exchange it for hard coins. Widespread corporate bankruptcy, bankruptcy, and double-digit unemployment resulted.
When Martin Van Buren took office as president in January 1837, panic was just beginning to set in. By the end of June, more than 250 businesses had gone bankrupt in New York alone. In September, Van Buren called a special session of Congress, calling for a national treasury system designed to make banks more accountable. Despite the political efforts, the effects of the Panic of 1837 were felt for many years.
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