The Panic of 1837

Stanley Rubenstein

[An essay included in an historical series published by the Henry George School of Social Science, New York, NY - 1967]

Depressions and recessions have been occurring so regularly through our history that economists have reported variously on the resulting mass unemployment and countless business failures. Shortly after the War of Independence the United States witnessed the first of a series of depressions. After the panic of 1785 there was another slump followed by a third period of economic dislocation, but neither of these compared in intensity with the 1837 panic, which lasted four years, with many fortunes made and lost.

Martin Van Buren was elected to the Presidency amidst rumors that the economy was entering a period of stagnation. Politicians and economists joined forces in an effort to analyze the causes and determine the extent to which government should control the economy. Steady financial decline plagued the Democratic administration. Some of the reasons offered were incurrence of large state debts due to the construction of canals and railroads; expansion of credit by numerous banks and the subsequent availability of easy money; an unfavorable balance of trade in which the imports exceeded exports resulting in a loss of specie; crop failures in 1835 and 1837 and the frenzy that was caused by the avalanche of land speculation. It is the latter point that is of major importance in the panic of 1837 and is closely linked with many of the other causes.

During the 1830's the growth of state and wildcat banks had offered many the opportunity to borrow money with great ease, and a sizeable portion was invested in the purchase of land. As a result, and this represents only one factor, government land sales soared, causing serious concern to the succeeding President, Andrew Jackson.

The land offices recorded that in 1836 the sales were ten times greater than they had been five years earlier. In order to limit the speculative fever Andrew Jackson, in opposition to the prevailing sentiment, issued the Specie Circular, which ordered land offices to accept only gold or silver in payment of public lands. Many state banks did not have specie backing and this caused a decline in borrowers, a drop in land sales to one quarter of the previous year, numerous defaulted payments and a financial crisis.

Urban real estate values increased at such an abnormally high velocity that a Hartford speculator tells of making 75 percent annually on an investment of $1,000 in Michigan where the boom was in high gear. Philip Hone, a parvenu in New York society, recalls a farm near Brooklyn that was offered for $20,000 in 1831 with no takers and sold in 1835 for $102,000.

The boom that preceded the panic was not limited to government land but included city lots, urban acreage, swamps and agricultural areas. Wild speculation, fraud and corruption prevailed in tile timber lands of Maine and extended inland from New England to western and southern sections. Purchases by an "American land company" form a chapter by themselves in the explosive history of mounting fortunes.