Q. David Bowers
The Panic of 1837
Trouble began early in the year 1837 when the "Flour Riot" erupted in New York City's Chatham Square. A crowd had gathered to protest the high prices of bread, meat, and fuel. They drove off the mayor and the police and stormed a warehouse holding flour.
In March, stock prices on Wall Street fell across a wide front of issues. Anxiety gripped the financial community. New Orleans, the trading center of the Mississippi Valley, was hard hit, and Herman Briggs & Company, a leading cotton brokerage house, failed. In a domino effect, other brokers and factors went bankrupt, and banks experienced a cash shortage.
At a March 1837 meeting in New York City, Daniel Webster told a crowd that the growing financial problems were due to government interference with private bank notes and, in particular, Andrew Jackson's Specie Circular of July 11, 1836 (see below). An appeal was made to newly-inaugurated President Van Buren, complaining that real estate values in the country had dropped by $40 million within the past six months.
At the time there were 788 banks in the United States (as of one reporting period in 1837; the number was constantly changing), with capital of $291 million. These institutions had $149 million worth of paper money in circulation, backed by $38 million worth of specie. Deposits totaled $127 million.. Outstanding loans amounted to $525 million.
The credit and cash crunch went from bad to worse, and on May 10, 1837, New York banks suspended specie payments under a state law which permitted them to do this for a one year period. By this time there were about 100 bank failures in the city, causing a loss of about $15 million. After this action virtually every bank elsewhere in the United States suspended paying out coins. By the end of the year, it was estimated that over 600 banks had failed. Many of these had assets of dubious value, and some hap no assets .at all, except a printing press or, more likely, some bank note ordering forms from bile or another of the engraving and printing firms that were all too eager to deliver as many notes as were requested. The country was awash in "broken bank" notes not worth the paper they were printed on.
Coins of all kinds disappeared from circulation, and in order to maintain commerce, paper "shinplasters" were issued by merchants, banks, towns, and others. Some of these were as worthless' as the broken bank notes they supplemented. Cent-size copper tokens, known to a later generation of numismatists as Hard Times tokens, were made by the millions and helped fill the need for small change. Scovill's mint and button factory in Connecticut made many of these, and sold keg lots at well under face value to merchants who wanted to spend them or give them out in change. Many bore advertisements of merchants; others bore anti Jackson or anti Van Buren inscriptions. Still others were neutral. Newspapers ignorantly denounced them as "counterfeits" They were riot legal tender, but neither were large cents; recipients could refuse either, but risked receiving scrip instead.
Adding to the general misery was the failure of much of the nation's wheat crop, leading to expensive importation from the Mediterranean area. By year's end an estimated 39,000 citizens went bankrupt, $741 million was registered in business losses, and all but one textile mill in New England closed down. Bucking the trend, Nathaniel Stevens expanded his textile operation production in North Andover, Massachusetts. His workers were on the job for 76 hours each week and earned an average of $4.50 per week plus $2 for room and board during that time.
The year 1838 opened with generally unfavorable business conditions left over from the year before. A report on Massachusetts banks stated that some of the strongest institutions had just $1 in specie on hand for every $10 to $20 worth of their paper money in circulation. Obviously, redemption of the notes was impossible. The Bircher Bank in Massachusetts had just $1 for every $25 of its currency.
In the meantime, New York banks had been preparing for the resumption pf specie payments by reducing their amount of paper money outstanding. On April 15, 1838, a convention of 143 bankers met in New York City by invitation of the New York Bank to discuss the resumption; most wanted to delay this until January 1, 1839, but under state law payments had to resume on May 10, 1838.
Specie payments did resume on May 10, 1838 in New York, and most other banks in the United States followed suit, except those in Philadelphia. The United States Bank agreed to resume its specie payments on August 13, 1838. During the year 1838 trade improved, and conditions became somewhat better, although toward the end of the year more financial problems developed.
In 1838 the United States Bank engaged in great speculation, which ultimately caused its downfall, and on October 10, 1839 it closed its doors. The entire banking system felt repercussions; 343 out of an estimated 850 banks in the country were said to have closed entirely and 62 partially. The U.S. government lost $2 million in deposits.
The so-called Hard Times era lasted until about 1844.
The Years 1836-1838 in History
The year 1836 saw great interest in building railroads, a relatively new type of transportation which eventually supplanted canals, which were still prominent in the decade and had been in use for years earlier (with the Erie Canal, built 1817-1825, being the most famous). The American Almanac jar 1836 reported that as of January 1, 1835, there were 2,867 miles of complented canals and approximately 1,600 miles of completed railroad track. In 1835, 465 miles of new railroad track were laid, followed by 175 miles in 1836, 224 in 1837, 416 in 1838, and varying amounts from that point onward. Anticipation of land opening up by the laying trackage furnished an incentive to buy real estate.
The year 1836 saw the record purchase of $24.8 million worth of public lands, up sharply from $14.7 in 1835 and only $4.8 million as recently as 1834. This boom was relatively short-lived, and after 1836 public land sales fell back to $6.7 million in 1837, with the financial panic of that year. Real estate assessments dropped with the Panic of 1837, and the total assessment of $309 million of 1836 fell and did not again cross the $300 million barrier until 1851.
On July 11, 1836 President Andrew Jackson issued his "Specie Circular," which mandated that agents handling the sale of government land could receive only silver and gold coins in payment. This order represented an effort to prevent the abuses associated with the notes of private banks, many of which notes were worthless. (Jackson himself was partly to blame. He had withdrawn federal funds from the Bank of the United States and had deposited them in his friends' "pet banks," which then failed.) Thomas Hart Benton estimated that by the end of 1836 the government saved $10 million through this precaution. In December 1836, John Calhoun called the paper money situation such a disaster that there was no hope for even the best financial and government minds correcting it.
On March 6, 1836 after 188 men defended themselves against an 11-day siege, the Alamo in San Antonio fell to 4,000 troops under the command of General Santa Anna, president of Mexico. Among the dead, the names of William B. Travis, James Bowie, and Davy Crockett would live in history. The Republic of Texas was founded with Sam Houston serving as president. In 1935 the 100th anniversary of this 1836 event would be commemorated by a United States half dollar, as would the centennial of Arkansas' admission to the Union in 1836.