The Panic of 1837 or recession of 1837 resulted from credit over-extension and speculation, causing bank failures that led to severe economic hardships.
The presidential election of 1836 brought Martin Van Buren into the White House. Van Buren, the heir-apparent of the outgoing Andrew Jackson, had been a staunch supporter of Jackson’s policies. Some of these policies, notably Jackson’s war on the Second Bank of the United States, had, however, the unfortunate consequence of driving the American economy into the worst financial depression it had ever experienced. This was the Panic of 1837, the effects of which would doom Van Buren to one term as president and have profound effects on American commercial growth and solidarity.
Bank Failures Caused by Reckless Speculation Led to the Recession
The “Panic” or recession that became full blown after Van Buren was inaugurated in March 1837 was precipitated by the failures of several prominent banks. This growing downturn was also felt in Britain, whose financial institutions were tied to large Northeastern banks and who had invested heavily in emerging American markets and enterprises.
Jackson’s shifting of government funds from the virtually defunct National Bank to smaller, regional “pet” banks caused widespread credit over-extension as well as rampant speculation. The Species Circular, which mandated that all land sales be finalized in gold or silver, devalued the currency and created national inflation.
Bank runs shuttered many venerable old banks and many of the newly emerging millionaires – “Monopolists” and “Extortioners” as labeled by the working class, found themselves penniless.
The State of the National Economy during the Panic of 1837
As banks failed, the stock market fell. Bankruptcies rose as did the unemployment rate. In the South, the price of cotton fell while prices for agricultural products rose throughout much of the country.
In the large urban centers, charitable organizations set up soup kitchens for the poor while angry mobs broke into warehouses, stealing barrels of flour. Fuel costs also rose after thousands of Pennsylvania coal miners were left unemployed following the closure of mines.
The Political Response to the Panic of 1837
President Van Buren refused to resurrect the National Bank or rescind the Species Circular. Calling a special session of Congress to meet in September 1837, Van Buren advocated legislation to reform and standardize bankruptcy laws and to create a “Sub-Treasury” to oversee banking activity under the direction of the Treasury Secretary.
The recession, however, had the greater political effect of strengthening the recently formed Whig Party which gained greater strength both on the state and national level following the 1838 mid-term election.
Hatred of the Jackson-Van Buren policies brought together a number of normally disparate groups like the Anti-Masons, antislavery men, conservative-minded Democrats, and Jackson-haters. This coalition would enable the Whig Party to triumph in 1840 with the election of William Henry Harrison and control of both houses of Congress.
Other Effects of the Great Recession of 1837
Throughout American history, difficult times of uncertainty and economic tribulation frequently led to spiritual revivalism. Refocusing on God was the evangelical answer to the greed that had caused economic travails. The Revival of 1858, for example, coincided with another national “panic” or recession.
Many distressed and disillusioned Americans turned to communal religious groups like the Shakers and Mormons, or joined one of the many Utopian movements and communities formed to provide deeper spiritual and human experiences. This was the period of millennial revivalism, heightening the expectation of Christ’s return.
Whether in religious or social terms, the word “reform” seemed the antidote to the economic woes of the nation as well as the devastating cholera epidemic that had gripped many urban communities.
The Cyclical Model of Boom and Bust Periods
The Panic of 1837 helped to reinforce later conclusions that American capitalism was subject to frequent “busts,” often caused by one unforeseen event that sent the entire system cascading downward. The “boom” periods, however, always lasted longer, contributing to the assumption that at some point a growing national economy would become strong enough to withstand minor corrections on its way toward Utopian prosperity. This view ended with the Great Depression.
The Panic of 1837 was the product of Jacksonian policies, carried out by Martin Van Buren. It ensured Van Buren would be a one-term president. The effects were felt by all of society but primarily by poor workers and a fledgling middleclass that saw its savings disappear with bank failures. The recession also refocused individual American priorities, leading to a spirit of revivalism that helped strengthen the Second Great Awakening.