On May 10, 1837, New York City banks announced they were suspending specie payments. This began the Panic of 1837, the first of the nation’s many major periodic economic collapses that would culminate in the Great Depression nearly a century later.
The economic crisis of the 1830s had many factors. First and foremost was the terrible economic policy of Andrew Jackson that culminated in the veto of the Bank of the United States renewal and the subsequent Deposit and Distribution Act that placed federal money in state banks that were absolutely horribly regulated. Combined with the Specie Circular that demanded that federal lands be purchased in coin and the Jackson administration had really set the table for a disaster, policies fully approved of by the new president, Martin Van Buren. All of this forced the reduction of lending out of New York banks, which was exacerbated by British lending policies that forced higher interest rates, all of which meant that the price of cotton declined 25 percent in the first months of 1837. As the South was highly dependent on stable cotton prices, this undermined the nation’s largest economic sector. In addition, many states, taken with the canal craze that swept the nation after the success of the Erie Canal had invested heavily in expensive and profit-poor projects, creating high levels of state debt that would be increasingly hard to pay off.
Over the next five years, the economy bounced back and forth. It looked like it would recover in 1838, but then collapsed again in 1839. It was not until 1843 that the economy sufficiently recovered to be out of the depression, although some economic indicators suggest that parts of the economy had grown during these years while others contracted. That the states had largely independent, if interconnected economies, meant that the Panic of 1837 affected them differently. New Hampshire was barely impacted as it lacked permanent debt to service, while Connecticut, New Jersey, and Delaware were devastated. Pennsylvania’s debt grew to $40 million by 1841, with $2 million in annual interest payments, a situation made worse by the fact that New York had won out the region’s internal trade due to the Erie Canal. The Keystone State doubled its tax base by raising taxes but it was so small to being with that this did not come close to servicing the debt. It defaulted in August 1842, even after grabbing whatever assets from the now closed BUS it could. The high level of debt among southern planters threw many of them out of business, but even here it varied by state, with Georgia and Florida able to put off dealing with the consequences until about 1840.
The impact on the nation’s growing urban working class was profound. The sailors who worked out of New York had no work as exports from the U.S. collapsed. Said Sailor’s Magazine, “The large number of ships lying at our wharves for months unemployed, have borne melancholy testimony of the complete stagnation of trade. Thousands of seamen have been cast on shore with but a few dollars in their pockets, scarce enough to pay a fortnight’s board.” Unemployment probably rose to about 8 percent. In the modern context, this doesn’t sound like it’s too bad, but understand that the sizable majority of white people were farmers during these years and unless they were bound up in high levels of debt, which was only true of a relatively small number of southern slaveholding planters, this didn’t really affect them too much, except for perhaps a decline in grain exports out of a nation that consumed most of its agricultural products locally during these years.
But in the cities such as New York and Philadelphia, the growing working class responded with low levels of protest. Probably 1/3 to 1/2 of the northern urban working class suffered at least one period of long-term unemployment between 1837 and 1842. Just before the Panic was the Loco Foco-inspired Flour Riot in response to the rapidly rising rate of flour in New York over the past year. Tammany Hall responded to this working class protest by adopting most of the anti-bank measures demanded by workingmen, even if these did not do much to solve the unemployment problem the workers faced. That prices declined by 35 percent in some areas probably helped alleviate some worker anger as their meager earnings did buy a little more.
In the long run, the Panic of 1837 itself is not that significant in the larger trajectory of American labor history. It did not lead to any large-scale movements or immediate social protest. The urban workingmen’s economy was too marginal to the rest of the nation’s workforce to create massive political upheaval. But not only was it an early moment when the poorly regulated American financial situation showed how it could create havoc in workers’ lives, but it also was an important moment in the laissez-faire ideas of government relationships with the economy that would dominate the next century. With so much of the problem caused by state investment in infrastructure, the lesson for many was that the state should stay out of economic regulation. This allowed employers to seize the rhetorical and legal playing field against their workers who would start demanding better lives and wages in the years after 1837 and provided a powerful political base to crush those workers’ movements.
However, if you extend the time frame a bit, you can see the Panic of 1837 helped spur eventual movements from below that also provoked government at all levels into the overly charged fears of revolt that would mark its response to worker political movements from Shays’ Rebellion to the Great Depression. This included the Dorr War in Rhode Island that challenged the state’s archaic and reactionary political institutions and led to the declaration of martial law by the governor, the anti-rent war in the Hudson Valley against the old Dutch patroons who still held power and which was cracked down upon in 1845 (although the landlords would finally give up the fight by 1850), and the 1844 Kensington Riot in Philadelphia, which was a battle between Irish immigrants and nativists. None of this happened directly because of the Panic of 1837, but the economic upheaval caused in cities by this started processes that led to various sorts of working-class movements in the coming years.
I borrowed from Alasdair Roberts, America’s First Great Depression: Economic Crisis and Political Disorder after the Panic of 1837 in the writing of this post.
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