Analysis of Panic of 1837 - Research Paper Example

Analysis of Panic of 1837 Wars have played an integral part in the history of the United States. Immediately after the United States’ independence war, the country witnessed a series of recessions. These are dislocations that have established the state’s tremendous economic devastations. Following the panic of 1785, a further slump ensued, and another followed. In 1837, the young state endured its most solemn depression yet. This paper shall discuss the 1837 panic in detail. It will provide information on when the panic started, what happened during the period, on the effects it had, the reasons that caused it, and the way American passed it or, rather, recovered. The 1837 panic did not result from a vacuum. A variety of factors aggravated the panic. The expansion of railroads and canals established large debts that would be incurred by the states. Imports exceeded exports leading to unfavorable balance of trade. This resulted in a thrash of specie, i.e. silver and gold, to the opposed paper currency. Several crop failures between 1835 and 1837 resulted in deficiencies in the budgets. The foremost cause of the panic was the economic effect of the land speculation. This was a moment of tentative mania. Following the demise of the United States’ bank, wild cats and state banks evolved hastily during the 1830s (Van 76). Money was easily obtained. Investors borrowed funds at a pace that could be termed as incredible. This did not only involve the western farmer but also manufacturers, traders, and merchants. The entire business community anticipated high returns if they spend their borrowed funds in speculative enterprises rather than refinancing novel ventures and settling out their debts. In the list of ventures, the leading would be investments in the readily available despicable land. The offices of land throughout the nation reported the sales as the speculators continued their investments for faster returns. In the years between 1834 and 1836, the sales had totaled approximately 37 million acres. In 1836, these sales were ten times more than they had been in 1830. The order of the day was land office business. In an attempt to curb this tentative fever, president Jackson has issued the Specie Circular. This order authorized every land office to accept only silver or gold instead of rag money in disbursement for the public lands (Friedman and Schwartz 89). The state banks had little specie backing. The land sales slumped. Many speculators defaulted payments due to the little silver and gold available. The tentative mania continued across businesses despite the attempt of the federal government to halt or curb it. The speculators equipped with sufficient cash hired smart agents to enable them appraise the most excellent lands. The superior speculators initiated illegal and unethical methods to get favor in their land quest. The Urban real estate was also involved in the mania as the values increased (Bourne 53). Valuation of real assets skyrocketed in New York above 50 percent within five years. The marine lands also tripled in value in few years. Martin Buren succeeded Andrew Jackson. Jackson bequeathed a precarious economy to his successor due to the battle between him and Nicholas Biddle, the president of the U.S. Bank. This battle sternly damaged the U.S. economy. In a few months after Buren took office, the federal government operated on deficit due to the demise of the United States’ Bank that funded operations (Smith 96). These economic contractions established strapping repercussions that unfastened the path for the emergent of the Whig party as a tough alternative to the Democrats. This streamed up to Illinois, a state of Democrats. The state legislatures endorsed laws exempting the banks from suspension’s penalties, which the business community had specified. Although, the incoming of President Buren granted him the opportunity to overturn the specie circular, he rebutted to sign the obligatory legislation to reverse the work of Jackson. Buren adopted the Jacksonian policies. However, he lacked the political capital to inflict them or strong economic forces to uphold them. A public meeting, initiated by the Democratic Party faction, took place in Manhattan. It protested the skyrocketed prices of commodities. The panic had overwhelming effects. I. Some brokerage firms within New York failed, even the state chartered banks. The president of the New York City bank committed suicide. The loan losses decreased the book value of the chartered banks of the state by 45 percent in the following period of five years. In this case, 194 banks out of 729 with charters obligatorily closed their doors. II. The nascent movement of labor union became effectively stopped as the labor prices plummeted. III. The depression made the real estate prices collapse. For instance, the expansion of actual investment per capita reduced from yearly average of about 6.6 percent in the previous five years prior the panic to 1.0 percent in the following period. IV. The food prices collapsed, which ruined the planters and farmers’ decent prices for their crops. While farmers default their payments, it placed new pressure upon the overextended bankers. The balance of trade in the United States became deficit due to the decline in the exports of agricultural products. The imbalance coupled with the declining of prices on cotton. The British banks demanded repayment from American borrowers in terms of hard currency. This crush brought distress and suffering since the essential food prices are crucial for the underprivileged (McGrane 49). V. The prices of industrial securities, banking, and rail road in the early stock markets dropped. Following the tremendous effects of 1837 panic, the federal government looked for ways to overcome all kinds of terrible recessions. In the period of summer of 1837, the President, Van Buren, structured a programme to combat the crisis. He delivered a message on 5th of September. He proposed a treasury body for federal deposits, which was to be separate from the banks. The president summoned a congress session. It was in September 1837 when he authorized the legislation to remove the taxpayers’ money from all banks and put in the independent treasury. The emerging Whig party opposed the system of sub-treasury. On 12th October 1837, approximately 10,000,000 U.S dollars in treasury notes were be issued under authority. On 21st May 1838, the congress withdrew the specie circular. However, Van Buren failed the 1840 presidential election in the United States. In 1841, during July, a bill has been passed in the senate with a vote of 26 against 23, reestablishing the national bank. On 6th august 1841, the House of Representatives approved the bank bill with a vote of 128 against 97. The 1840 independent Treasury Act was repealed on 13th august 1841. President Tyler rejected the bank bill on 16th August 1841. After that, the United States senate failed to overrule the veto. On 23rd August 1841, the House of Representatives passed the second bank bill stating the establishment of the state’s bank under a new name. During the month of September 1841, the United States Senate endorsed the second bank bill. On 4th September 1841, the Congress passed the Act of Distribution Preemption. This act allowed settlers to preempt, i.e. purchase public land up to 160 acres at $1.25 per acre. It also enabled distribution of incomes from land sales within the states (Kendrick 102). However, President Tyler insisted on withdrawal of the second bank bill in which some members within the senate resigned. The president appointed new members for the cabinet on 13th September 1841. There was a proposal to set up subordinate boards in every state. The board was to receive, disburse, and safely keep the public money. The exchequer system was enhanced to retain the government’s revenues up to $5,000,000 in treasury notes or specie. The revenue was set aside to pay public creditors and enhance the state’s operations. In order to curb hazardous incidents of fluctuations in trade, the treasury secretary issued the 5 million dollars of government stock. The exchequer which entered public circulation was maintained all the time in silver and gold, thereby realizing and fulfilling the people’s wishes. Work cited: Bourne, Edward. The History of the Surplus Revenue of 1837. New York: The Knickerbocker Press, 1985. Print. Friedman, Milton, and Anna Schwartz. Monetary Trends in the United States and the United Kingdom. Chicago: University of Chicago Press, 1992. Print. Kendrick, John. Productivity Trends in the United States. Princeton, NJ: Princeton University Press, 1991. Print. McGrane, Reginald. The Panic of 1837: Some Financial Problems of the Jacksonian Era. Chicago: University of Chicago Press, 1989. Print. Smith, Walter. Economic Aspects of the second Bank of the United States. Cambridge, MA: Harvard University Press, 1993. Print. Van, Fenstermaker. The Development of American Commercial Banking, 1782-1837. Kent, OH: Kent State University Bureau of Economics and Business Research, 1991. Print. Read More