Recessions, like wars, have been an integral part of United States history. Shortly after our War of Independence, the nation witnessed the first in a series of depressions -- dislocations that have caused this country tremendous economic havoc. Following the panic of 1785, another slump ensued, and then another. In 1837, however, the young nation endured its most serious depression yet.

This panic was made worse by a number of factors: large debts incurred by states due to over-expansion of canals and the construction of railroads; an unfavorable balance of trade as imports exceeded exports, resulting in a loss of specie (gold and silver -- as opposed to paper currency) ; and several crop failures in 1835 and 1837. The major cause of the panic, however, was the economic impact of land speculation. It was a period of speculative mania.

After the demise of the Bank of the United States, state and wildcat banks grew rapidly during the 1830s. Funds were more easily available, and investors borrowed money at an incredible pace. Not only the small Western farmer, but merchants, manufacturers and traders also borrowed heavily. The business community, rather than paying off their debts and refinancing new ventures, anticipated greater returns if they invested their borrowed money in speculative enterprises -- investments that, they hoped, would greatly increase in value while they held them. Leading the list of speculative ventures were investments in the vast amounts of readily available cheap land.

Land offices throughout the country reported record sales as speculators invested for quick returns. Between 1834 and 1836, sales totaled 37 million acres. By 1836, sales were ten times greater than they were in 1830. "Land office business" was the order of the day. In an effort to curb this speculative fever, President Jackson issued the Specie Circular. This order mandated all land offices to accept only gold and silver, rather than "rag" money, in payment for public lands. Since state banks did not have adequate specie backing, land sales dropped. Numerous speculators defaulted in their payments, because little gold and silver were available.

The speculative mania continued to spread, despite the Federal Government's attempts to halt it, or at least to curb the speculative holding of large tracts of land. Speculators, armed with ample cash, hired shrewd agents to keep them apprised of the best lands -- and land bargains -- available. Large speculators also used a slew of unethical and illegal methods to gain the upper hand in their quest for land.

Public land, although the most important facet of speculation, was by no means the only kind of land sold. Urban real estate was also caught up in this mania as values increased. A Hartford speculator related making 75% annually on an investment of $1,000 in Michigan, where the boom was in high gear. Not only the Midwest witnessed wild speculation. Valuation of real property increased in New York over 50% in five years. And even Maine timber lands tripled in price in just a few years.

When Andrew Jackson left the Presidency, he bequeathed to his successor, Martin Van Buren, an economy that had been dangerously damaged, as a result of the battle between "Old Hickory" and Nicholas Biddle, president of the Bank of the United States. The wounds of battle severely damaged the nation's economy -- and economic weakness exacerbated the sectional rivalries that continued to build.

Background Questions:

  1. What were some of the underlying causes of the Panic of 1837?
  2. Explain the impact that the Bank of the United States had on the availability of money.
  3. What was the purpose of the "Specie Circular"?
  4. Explain some of the causes of the most recent recession.
  5. What are some of the similarities and differences of today's recessions and the Panic of l837?


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