Panic of 1837

The Panic of 1837 was a financial crisis in the United States that began a major depression (not to be confused with the Great Depression), which lasted until the mid-1840s. Profits, prices, and wages dropped, westward expansion was stalled, unemployment rose, and pessimism abounded.

The panic had both domestic and foreign origins. Speculative lending practices in the West, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Britain were all factors.^[1][2] The lack of a central bank to regulate fiscal matters, which President Andrew Jackson had ensured by not extending the charter of the Second Bank of the United States, was also key.

The ailing economy of early 1837 led investors to panic, and a bank run ensued, giving the crisis its name. The bank run came to a head on May 10, 1837, when banks in New York City ran out of gold and silver. They immediately suspended specie payments, and would no longer redeem commercial paper in specie at full face value.^[3] A significant economic collapse followed: despite a brief recovery in 1838, the recession persisted for nearly seven years. Over 40% of all banks failed, businesses closed, prices declined, and there was mass unemployment. From 1837 to 1844, deflation in wages and prices was widespread.^[4]

As the nation underwent hardships, positive forces were at work that, in time, would invigorate the economy. Railroads had begun their relentless expansion, and furnace masters had discovered how to smelt greater quantities of pig iron. The machine tool and the metalworking industries were taking shape. Coal had begun its ascent, replacing wood as the nation’s major source of heat. Innovations with agricultural machinery would bring greater productivity from the land. The nation’s population would also increase by more than one-third during the 1840s, despite the economic turmoil.

After downturns in 1845-1846 and 1847-1848, gold was discovered in California in 1848, setting off a prosperity of its own. Meanwhile, individuals and institutions were hurting.^[5]