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Panic of 1837: Van Buren`s First Challenge

The early 1830s was a time of expansion and prosperity. Much of the growth in these years had been fueled by the widespread construction of new railroads and canals. Millions of acres of public lands were sold by the government, mostly to speculators. Their hope was to purchase well-located parcels that would increase in value as the railroads and canals brought settlers and traffic into their areas.

These government land sales, coupled with the Tariff of 1833, brought huge amounts of money into the Treasury’s coffers. In 1835, the government was able to pay off the national debt—one of the fondest dreams of President Andrew Jackson.

For one of the few times in American history, the Treasury rapidly began to accumulate a surplus. Members of Congress responded to pressures from home and passed a measure distributing the surplus to the states. The windfall was quickly invested in further internal improvement projects-more railroads and canals.

Most state governments, as well as many individuals, preferred to hoard specie (gold and silver) and to discharge debts with paper bank notes. Jackson became alarmed by the growing influx of state bank notes being used to pay for public land purchases and, in 1836 shortly before leaving office, issued the Specie Circular. This order commanded the Treasury to no longer accept paper notes as payment for such sales.

Westerners were dismayed by this action, and a major bank crisis awaited the incoming administration of Martin Van Buren, in early 1837. Banks restricted credit and called in loans. Depositors rushed to their local institutions and attempted to withdraw their funds.

Unemployment soon touched every part of the nation and food riots occurred in a number of large cities. Construction companies were unable to meet their obligations, sparking the failure of railroad and canal projects, and the ruin of thousands of land speculators.

Van Buren was philosophically opposed to direct government action in combating the nation’s economic ills, a position that probably cost him reelection in 1840. The Whigs, however, capitalized on the misery, electing William Henry Harrison as their first president.

The impact of the depression, however, lingered until 1843.