(Ed's Note: Ashore and farming in Zanesville, Ohio, for a period of four short years - Joseph Resch and his family experience first hand one of the most severe banking crises in U.S. history.)
The Panic of 1837 stands among the most severe banking crises in U.S. history, marking the start of a business downturn from which the nation would not recover for six years. Hundreds of banks and businesses failed. Thousands lost their lands. For this period, the United States was wracked by the worst depression thus far in its short history.
Basically the trouble was the 19th-century cyclical economy of "boom and bust," which was following its regular pattern, but Andrew Jackson's financial measures contributed to the crash. His destruction of the Second Bank of the United States had removed restrictions upon the inflationary practices of some state banks; wild speculation in lands, based on easy bank credit, had swept the West. To end this speculation, Jackson in 1836 had issued a Specie Circular requiring that lands be purchased with hard money--gold or silver.
Martin Van Buren, early in 1837, devoted his Inaugural Address to a discourse upon the American experiment as an example to the rest of the world. The country was prosperous, but less than three months later the panic of 1837 punctured the prosperity.
The true panic of this depression consisted of banks over- extending credit on insufficient collateral as well as a shortage of the nations currency. The shortage of currency failed to meet the demands of the country at a time when the nation was prospering, the railroad was laying tracks and extending outward, and canals were being built to make even more routes of transportation. Basically, people were spending money and investors were buying in to the American corporations and state bonds. In the book American History a Survey, it is stated that during 1835 - 1837 nearly 40 million acres of land were bought and sold in the nation to immigrants who had little or no money. The land was sold on credit at greatly advanced prices. However, investors who were mostly Eastern speculators from the United States coming here to take advantage of the situation were buying most of the land. They had hopes to re-sale and make a profit. Their form of payment for this land was usually loans from banks. At the same time, the money from these land sales was coming in to the US treasury from land office, and most of it was of dubious value. In short, the government was selling acres of land and, in return, receiving a miscellaneous collection of state bank notes, none of which was really worth the stated value.
Programs applied decades later to alleviate economic crisis eluded both Van Buren and his opponents. Van Buren's remedy--continuing Jackson's deflationary policies--only deepened and prolonged the depression.
Declaring that the panic was due to recklessness in business and overexpansion of credit, Van Buren devoted himself to maintaining the solvency of the national Government. He opposed not only the creation of a new Bank of the United States but also the placing of Government funds in state banks. He fought for the establishment of an independent treasury system to handle Government transactions. As for Federal aid to internal improvements, he cut off expenditures so completely that the Government even sold the tools it had used on public works.
In a lecture delivered before the Sunday lecture society,
by John Wentworth, he told people “the government was not only out of debt,
that it also had an existing surplus of funds.” At this point, men became
excited and reckless, as money was taken from every branch of business to invest
in western land speculators. However, President Jackson was aware of the
situation, but had no power to stop the land sales or limit bank discounts. The
president’s plan to solve the issue was to order that nothing but gold or
silver could be exchanged for public lands. This was called his “Specie
Circular” in 1836. This new concept for land purchases was just a sign of the
trouble and panic that was ahead for the country. The people would begin to
experience a shortage of paper money, the precious metals would be driven out of
the country, and the banks would not have the resources to claim any bills.
Thus, the nation’s banks would fail to survive.
Consequently, many corporations and small businesses,
as well as individual workers would also suffer. Soon, corporations and
individual businesses everywhere began to issue certificates that would be
redeemed at their business. These tickets would be valid for items and services
such as barber services and food staples. In other words, to get a haircut or
buy a loaf of bread you needed a ticket or certificate. Debts were all paid
without the form of paper money. The public soon became leery of using the
tickets, and had figured out that there was a shortage of currency. Previously,
the people had been purchasing things they did not need, and for which they
could not pay. And when their finances failed, they blamed it on the president.
In John Wentworth’s lecture he stated the signs of
economic collapse were present before President Jackson fulfilled his term and
left office. The interest rates climbed over 20%, cotton prices spiraled
crazily, and food riots erupted in New York City. The inflated land values,
speculation, and wildcat banking contributed to the crisis which became known as
the “Hard Times of 1837-1843”. The PEI History Department paper “Panic of
1837” stated that: over 39,000 Americans went bankrupt, losing 741 million
dollars as the depression reduced many people to the streets and also to
starvation. This depression also spread across the ocean to Britain and the rest
of Europe. A lithograph showed just how the depression was affecting the people.
For example, many people were not watching the fireworks or parade celebrating
of our country’s 61st year of independence; but, instead, they were
preoccupied with their own troubles. Many people were standing idle with the
tools of their trade in hand, while others who were un-employed stood in lines
to do business with the local pawnshop to seek loans to buy liquor. There was
also a line at the local bank where depositors tried desperately to get cash for
their worthless bank notes. The sheriff’s office was also busy where property
was being sold due to unpaid taxes. The sub-treasuries plan of Van Buren turned
out to be a weak and ineffective plan for the independent treasury to deal with
economic depression. As a result, the damage was insurmountable for his
presidency. Passing the bill for his plan took the remainder of his term. By
then, the economic storm had raged long and harsh on businesses and workers.
Even two years later with the induction of the new president, and the issuing of
US Treasury notes, did not ease any of the financial crisis on the nation. “The
Panic of 1837” was a situation involving an unstable currency and
financial system resulting in a lack of confidence in both government and the
banks.
The Panic and Muskingum County
As the Panic of 1837 set in, markets for Muskingum County products shut down. Wages had been high and real estate had been increasing in value, and with the onset, many merchants had to sell their stores to pay their debts. When properties were thrown on the market, real estate prices crashed. Valuable lots in the most desirable locations were sold in 1837 at 70% less than prices they were bought only 12 months before. There was one stabilizing influence in this disaster. The Muskingum Bank of Zanesville and the Bank of Pittsburg were the only two in the Nation which did not repudiate their paper.