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Panic of 1837

Panic of 1837

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The Panic of 1837 was a financial crisis
Financial crisis
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...

 or market correction
Market correction
A Market Correction is a rapid change in the nominal price of a commodity, after a barrier to free trade has been removed and the free market establishes a new equilibrium price.- See also :* Market Trend* Real Estate Bubble of 1796-1797...

 in the United States built on a speculative fever
Speculative fever
Speculative Fever is a term used in the housing market which represents the frequent action of buying and selling housing properties. In the case of Speculative fever, the buyer and seller has no intention of ever occupying the house, only purchasing it for the sole reason of selling it off for a...

. The end of the Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...

 had produced a period of runaway inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

, but on May 10, 1837 in New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...

, every bank began to accept payment only in specie
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...

 (gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...

 and silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...

 coin
Coin
A coin is a piece of hard material that is standardized in weight, is produced in large quantities in order to facilitate trade, and primarily can be used as a legal tender token for commerce in the designated country, region, or territory....

age), forcing a dramatic, deflationary backlash. This was based on the assumption by former president, Andrew Jackson, that the government was selling land for state bank notes of questionable value. The Panic was followed by a five-year depression, with the failure of bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s and then-record-high unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

 levels.

Causes


Some causes include the economic policies of President
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....

 Andrew Jackson
Andrew Jackson
Andrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...

 who created the Specie Circular
Specie Circular
The Specie Circular was an executive order issued by U.S. President Andrew Jackson in 1836 and carried out by President Martin Van Buren. It required payment for government land to be in gold and silver.-History:...

 by executive order and also refused to renew the charter of Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...

, resulting in the withdrawal of government funds from that bank. Martin Van Buren
Martin Van Buren
Martin Van Buren was the eighth President of the United States . Before his presidency, he was the eighth Vice President and the tenth Secretary of State, under Andrew Jackson ....

, who became president in March 1837, five weeks before the Panic engulfed the young republic's economy, was blamed for the Panic. His refusal to involve the government in the economy was said by some to have contributed to the damages and duration of the Panic. Jacksonian Democrats
Jacksonian democracy
Jacksonian democracy is the political movement toward greater democracy for the common man typified by American politician Andrew Jackson and his supporters. Jackson's policies followed the era of Jeffersonian democracy which dominated the previous political era. The Democratic-Republican Party of...

 blamed the banks' irresponsibility, both in funding rampant speculation and in introducing paper money inflation. This was caused by banks' issuing excessive paper money
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...

 (unbacked by bullion reserves), leading to inflation.

Others take a different view, blaming a combination of the Second Bank of the United States, Mexican bimetallism (which drove Mexican silver out of Mexican circulation according to Gresham's Law
Gresham's Law
Gresham's law is an economic principle that states: "When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation." It is commonly...

, and into America where it was legal tender), legal tender law, fractional reserve banking, and state government deficit spending, which dramatically increased the money and credit supply, decreased interest rates, and led to erroneous investment decisions before and up to 1837, according to the Austrian Theory of the Business Cycle
Austrian Theory of the Business Cycle
The Austrian business cycle theory attempts to explain business cycles through a set of ideas held by the heterodox Austrian School of economics...

.

Effects and aftermath


Within two months the losses from bank failures in New York alone aggregated nearly $100 million. "Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of State banks received a shock from which it never fully recovered.". The publishing industry was particularly hurt by the ensuing depression.

In 1842, the American economy was able to rebound somewhat and overcome the five year depression, in part due to the Tariff of 1842
Tariff of 1842
The Tariff of 1842, or Black Tariff as it became known, was a protectionist tariff schedule adopted in the United States to reverse the effects of the Compromise Tariff of 1833...

, but according to most accounts, the economy did not recover until 1843.

Most economists also agree that there was a brief recovery from 1838 to 1839, which then ended as the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...

 and Dutch creditors raised interest rates. However, economic historian Peter Temin has argued that, when corrected for deflation, the economy actually grew after 1838. According to economist and historian Murray Rothbard, between 1839 and 1843, real consumption increased by 21 percent and real gross national product increased by 16 percent, despite the fact that real investment fell by 23 percent and the money supply shrank by 34 percent.

In popular culture

  • The 1853
    1853 in literature
    The year 1853 in literature involved some significant new books.-Events:*Charles Dickens writes Bleak House, the first English novel to feature a detective.*William Wells Brown becomes the first African American novelist to be published.-New books:...

     novel The Lofty and the Lowly, or Good in All and None All Good
    The Lofty and the Lowly, or Good in All and None All Good
    The Lofty and the Lowly, or Good in All and None All Good is a novel by Maria J. McIntosh published by D. Appleton & Company in 1853. It was one of many anti-Tom novels published in response to Harriet Beecher Stowe's Uncle Tom's Cabin. The story is set is Georgia and tells of a plantation owner's...

    by Maria J. McIntosh followed the difficulties of a Southern
    Southern United States
    The Southern United States—commonly referred to as the American South, Dixie, or simply the South—constitutes a large distinctive area in the southeastern and south-central United States...

     plantation owner faced with bankruptcy during the Panic of 1837.

See also


  • Panic of 1819
    Panic of 1819
    The Panic of 1819 was the first major financial crisis in the United States, and had occurred during the political calm of the Era of Good Feelings. The new nation previously had faced a depression following the war of independence in the late 1780s and led directly to the establishment of the...

     
  • Panic of 1857
    Panic of 1857
    The Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy. Indeed, because of the interconnectedness of the world economy by the time of the 1850s, the financial crisis which began in the autumn of 1857 was...

  • Panic of 1873
    Panic of 1873
    The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...

  • Panic of 1884
    Panic of 1884
    The Panic of 1884 was a panic during the Recession of 1882-85. Gold reserves of Europe were depleted and the New York City national banks, with tacit approval of the United States Treasury Department, halted investments in the rest of the United States and called in outstanding loans. A larger...

  • Panic of 1890
    Panic of 1890
    The Panic of 1890 was an acute depression, although less serious than other panics of the era. It was precipitated by the near insolvency of Barings Bank in London. Barings, led by Edward Baring, 1st Baron Revelstoke, faced bankruptcy in November 1890 due mainly to excessive risk-taking on poor...

  • Panic of 1893
    Panic of 1893
    The Panic of 1893 was a serious economic depression in the United States that began in 1893. Similar to the Panic of 1873, this panic was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures...


  • Panic of 1896
    Panic of 1896
    The Panic of 1896 was an acute economic depression in the United States that was less serious than other panics of the era precipitated by a drop in silver reserves and market concerns on the effects it would have on the gold standard. Deflation of commodities prices drove the stock market to new...

  • Panic of 1901
    Panic of 1901
    The Panic of 1901 was the first stock market crash on the New York Stock Exchange, caused in part by struggles between E. H. Harriman, Jacob Schiff, and J. P. Morgan/James J. Hill for the financial control of the Northern Pacific Railway. The stock cornering was orchestrated by James Stillman and...

  • Panic of 1907
    Panic of 1907
    The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...

  • Panic of 1910-1911
    Panic of 1910-1911
    The Panic of 1910-1911 was a slight economic depression that followed the enforcement of the Sherman Anti-Trust Act. It mostly affected the stock market and business traders who were smarting from the activities of trust busters, especially with the breakup of the Standard Oil Company.-See also:*...

  • The Great Depression


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