Panic of 1837: Causes & Summary

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  • 0:00 The Election of 1836
  • 0:43 The Panic of 1837
  • 3:41 Effects of the Panic
  • 4:12 Lesson Summary
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Lesson Transcript
Instructor: David Lobb
The Panic of 1837 was the first depression of America's industrial era. Develop an understanding of this financial crisis and test your knowledge with a short quiz.

The Election of 1836

The election of 1836 was an intense race, which saw several candidates vying for the presidency. One candidate however, stood out from the rest. Martin Van Buren, Andrew Jackson's handpicked successor, took on some of America's favorite sons including Daniel Webster, and William Henry Harrison and won. Van Buren would become the eighth president, the first of Dutch ancestry and at age fifty-five the first born under the Stars and Stripes. Van Buren owed much of his success in politics to good luck. But once he had climbed to the top, luck suddenly deserted him. For just as some said he inherited the office from Jackson, he also inherited a financial panic.

The Panic of 1837

An already precarious economy was tipped over into crisis by depression in England, which resulted in a drop in the price of cotton from 17 ½ cents to 13 ½ cents a pound, and caused English banks and investors to cut back on their commitments in the New World and refuse extensions of loans. This was a particularly hard blow, because much of America's economic expansion depended on European capital.

Although this fell to Van Buren, Andrew Jackson's banking policy may have started the depression, since Jackson ordered the withdrawal of federal deposits from the Bank of the United States and the placement of federal money in state banks. The federal government paid off the national debt in 1835, leaving it with excess revenues that it distributed to the states, which made the growing inflation worse. As the amount of paper money in the economy exploded, Jackson issued an order requiring all public land sales to occur in gold or silver, rather than banknotes. Jackson hoped to end speculation by limiting the currency available to purchase land. The result was a squeezing of the money supply and eventually, a financial panic.

On top of everything else, in 1836 there had been a failure of the wheat crop. Wheat was the export that had helped offset the drain of payments abroad. As creditors moved quickly to foreclose, the inflationary spiral went into reverse. In these unstable financial times, states put plans for roads and canals on hold. In the crunch, a good many of the unregulated banks succumbed, and the government itself lost some $9 million it had deposited in pet banks.

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