Federal income from land sales and tariff duties enabled President Andrew Jackson, in 1835, to fulfill one of his campaign pledges — to pay off the national debt; he was the only president ever to do so. Legislation that existed at the time provided that surpluses of more than $5 million were to be returned to the states as loans. In anticipation of this windfall, some states initiated expensive internal improvement programs. The Panic of 1837 intervened, leaving a number of states in deep financial difficulty.
Jackson’s second administration existed during a period of rising inflation. The causes were varied, but the loose reserve policies of wildcat banks (financially risky institutions) were a key element. Many of the weak state and local banks in the West had less than one dollar in specie (gold and silver) for every 10 dollars issued in paper money. Land purchasers naturally used paper money whenever possible in their transactions with the government. Huge amounts of the increasingly worthless paper ended up in the government’s hands. Jackson responded by issuing the Specie Circular in 1836. This measure required the use of specie in all payments for government lands, a move that infuriated many Westerners.
The Specie Circular was cited as a major cause of the Panic of 1837.
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