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The Panic of 1837 was one of the worst financial crises to ever hit the United States of America (at the time it was the worst). It brought a five year recession in its wake. Gloom mongers (and even hard-headed realists) believed that the nation would never recover its prosperity.
During the 1830s there was an immense boom of real estate speculation focused on public lands which were being sold off to buyers with political connections. Huge fortunes could be made by reselling this land to railroad companies and canal builders who were rushing forward with competing projects. The individual states were complicit with this mania, sinking vast amounts of public money into a diverse array of infrastructure projects both good and bad.
Through various vetoes and political maneuvers President Andrew Jackson had successfully engineered the demise of the Second Bank of the United States (which was unable to renew its charter in 1832). A great rash of new banks and investment companies sprang up throughout the 1830’s to supplant the bank. Rather than paying off their debts and refinancing new projects, these financial houses anticipated greater profits from investing borrowed capital in the booming land speculations. Because of this apparent national prosperity, the balance of trade shifted. America, previously an exporter, was suddenly importing more goods than it was selling. In anticipation of the huge profits, American states and corporations (and wealthy individuals) were borrowing money from European banks. Additionally, the world’s climate was changing in the 1830s. An unusually cold era marked by intense volcanic activity and by an anomalous paucity of sunspots (the Dalton minimum) was coming to an end. As environmental conditions changed, crops failed in 1835 and in 1837.
All of these factors were topped off by disastrous executive meddling. The Specie Circular Act was an executive order issued summarily by Andrew Jackson in 1836 (during his last year in office) and carried out by his unfortunate successor. It required payment for all government land to be in gold or silver. Jackson anticipated that the nation’s coffers would fill up with precious metals (he apparently did not trust paper money). But people did not and could not pay. The bubble burst. Over 600 banks failed and the cotton market completely collapsed. Eight states partially or wholly failed and even the Federal government was unable to discharge its debts. Trade stood still as business confidence evaporated entirely. Food riots shook the country. Unemployment and hardship were the watchwords of the time. The whole sad affair was exacerbated by economic calamity overseas: European bankers, suffering from their own setbacks, curtailed lending. It was not until 1842 that the economy began to recover.
Strangely enough, the grim era between 1837 and 1842 witnessed tremendous technical innovations which would reshape the nation and the world. In 1837 Samuel Morse invented the electric telegraph, which he successfully tested on January 6th 1838 at the Speedwell near Morristown, New Jersey–thus inventing the telecommunications industry. Crawford Williamson Long used ether for the first time on March 30, 1842 to remove a tumor from the neck of a patient and usher in a new era of surgery. In Europe a German chemist invented artificial fertilizer while James Nasmyth perfected the steam hammer (which made it much easier to build large machines). Morse’s accomplishments and those of his fellow inventors are remembered. The failures of the rapacious bankers, greedy speculators, and incompetent politicians have been forgotten by everyone except for historians.