Our ancestors’ lives were impacted by events surrounding them, just as our lives often are. As you research your ancestors’ lives, you can learn about the economic and societal events of their time in order to understand where they were living and what was going on around them. The Panic of 1837 is one event that affected and impacted our ancestors on a global scale.
The Panic of 1837 was a financial crisis which affected the global economy. A downturn in the economy led investors to withdraw their money from banks. This had a profound influence on those living in the United States from the late 1830s to the mid-1840s.
To understand what happened and why, we need to take a quick look at what was happening during that time period.
The World in 1830s–1840s
- Queen Victoria began her reign of the British Empire in June 1837.
- Opium wars between Britain and China resulted in increased trade with Asia as well as India.
- Europe was dealing with changes that came with the French revolution of 1789, as well as from increased industrialization.
Life in the United States in the 1830s
- In the United States, most people lived east of the Mississippi River in 26 states and the territories of Wisconsin and Florida. Most of the citizens were involved with agriculture, with some factories operating in the northeastern part of the United States.
- The Republic of Texas was organized in 1836. The Pacific Northwest of the United States was Oregon Country consisting of Washington, Oregon, and Idaho. This geographic area was occupied by the British and Canadian fur traders. The southwest portion of the United States, along with California, was part of Mexico. Russia owned Alaska, and Hawaii was an independent kingdom.
- Between 1830 and 1840, the population grew from 12,866,000 persons to 17,070,000, including 2,487,355 slaves.
- Native Americans were resettled from their native areas to land west of the Mississippi River when the Indian Removal Act was signed in 1830. In addition to having devastating consequences for Native Americans, it opened land for agriculture in the American South and increased slave traffic.
- Andrew Jackson was President of the United States from 1829 to 1837, followed by Martin Van Buren, who was President from 1837 to 1841, William Henry Harrison (who died 32 days after his inauguration), and John Tyler, who was President from 1841 to 1845.
Financial Panic of 1837
The early 1830s had been a period of prosperity with increased trade and land speculation. Cotton had become one of the United States’ major exports. High cotton prices brought about increased land purchases and increased the demand for more slaves. This rapid growth created an economic bubble.
In addition, gold, or specie (coins or other metal money), was the standard for trade with paper currencies only used for convenience. For example, British investment bankers and American importers used paper currency to finance their transactions. Thus, if the amount of gold in banks declined, paper currencies were redeemed at a lower value.
Increased land sales and import duties led to an increase of currency, and President Andrew Jackson paid off the national debt in 1835. States used bonds and loans from the British money markets to finance transportation projects, westward expansion, infrastructure improvements, and economic development. Because of the budget surplus, there was an overabundance of currency in circulation, and inflation began to rise.
Banking Policies
Several banking policies of Andrew Jackson contributed to the bank panic of 1837. In 1833, in part because of his distrust of bankers, he vetoed a bill to recharter the Second Bank of the United States, the nation’s central bank and fiscal agent. He then moved treasury money to state and local banks in the deposit act of 1836.
Unfortunately, these smaller banks, called Pet Banks, often engaged in speculative lending practices without enough money in reserve. Then, in July 1836, he issued the Specie Circular executive order that limited buying more than 320 acres of land to only specie. The idea was to curb inflation and speculative land purchases, but it caused a decline in monetary reserves from $7.2 million in September 1836 to $1.5 million in 1837.
British investment bankers became alarmed at events in the United States. They began restrictive measures, including raising interest rates, and they ceased accepting foreign bills of exchange that American merchants had used to pay for British manufactured goods.
Decline in Cotton Prices and a Bad Harvest
At the same time, due to overproduction and increased exports of cotton to Britain from India and Egypt, cotton prices fell by 25% in February and March 1837. The United States economy was mostly agricultural and depended on stable cotton prices. The collapse of cotton was a major factor in the Panic of 1837.
Plantation owners had used paper bills of exchange to buy land and slaves and counted on money from the harvest to pay their debts. When British investment bankers refused paper currency and New York banks suspended specie payments for paper currency at full value in May 1837, investors rushed to withdraw their money. Many cotton producers lost their farms, ended up selling slaves to the highest bidder, and caused cotton wholesalers to fail.
Severity of Panic
The combination of banking policies and the cotton prices falling led to high rates of unemployment in the northeastern United States and the factories of Great Britain. The estimate is that nearly half of the state and local banks failed, causing bankruptcies, unemployment, and the deflation of wages and prices. Crop failures due to winter kill and Hessian fly infestation in 1836–37 caused the price of wheat to rise. The increased cost of food led to several food riots.
Congress repealed the Specie Act in 1838, and President Van Buren called for an independent Treasury and increased security for deposits to help ease the crisis. Circumstances began improving in 1839. With an increase in British investors purchasing American securities and a poor harvest, Great Britain’s reserves were dangerously low. The Bank of England raised interest rates. In order to stay competitive, New York banks followed, which affected lending and commodity prices. When the successor to the national bank, the Bank of the United States of Pennsylvania (BUSP), suspended specie payments in 1839, multiple banks throughout the country failed.
When the BUSP failed in 1841, so did multiple banks in the South and West, along with bond markets for several states that financed internal improvement projects. With the failure of the bond market in 1842, 9 states and territories, mostly in the South, defaulted on their debts to British investment banks. The United States briefly withdrew from international money markets as a result. While the whole country felt the effects of the Panic, conditions in the South were much worse, because southern banks failed and many plantations were unable to cultivate their crops.
Recovery
The economy began to recover around 1843 with an increase in production, trade, and consumption. Territory expansion from the Mexican American War, along with the gold rush of 1848 that built up the gold supply, also helped pull the country out of economic depression.
European revolutions in 1848 and social upheavals there made American investments look promising to foreign investors. The United States rejoined the international money markets, and by 1850 the economy was booming again.
Where Were Your Ancestors During the Panic of 1837?
To learn more about your ancestors during this time period, there are a number of places you can look. Check out FamilySearch census records from 1830 and 1840, as well as land records. Historical records can have helpful and interesting information about your ancestors—where they lived, how big their family was, what they did for work, and more. As you find more information, be sure to add what you find to your FamilySearch account. With a free FamilySearch account, you can search historical records on FamilySearch and also access the shared Family Tree, where people worldwide are sharing what they know about their common ancestors.
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