President Martin Van Buren was blamed for the Panic of 1837 and proposed the system for the retaining government funds in the United States Treasury and its sub-treasuries to address the situation but met with strong opposition by the Whigs, led by Henry Clay.
Panic of 1837 for kids: Background History of the Panic of 1819
The Panic of 1837 occured just 5 weeks into the presidency of Martin Van Buren. The events leading to the Panic of 1837 took place during President Andrew Jackson's term of office, and even before his presidency. The earlier Panic of 1819 was caused by the bad management of the Second Bank of the United States and had resulted in serious hardship for the people in the two year depression that followed.
Panic of 1837 for kids: Background History of the Bank War
Andrew Jackson, the 'man of the people', had also suffered financially during the Panic of 1819. The experiences suffered by so many American citizens, including Andrew Jackson, fostered a profound mistrust of banks, bankers and paper money. When Jackson became president he swore to bring about the destruction of the Second Bank of the United States and so the Bank War began and the national bank was destroyed. Government money was deposited into Jackson's state "Pet Banks". Unregulated Wildcat banks also emerged, especially in the frontier towns of the west, where there was extensive land speculation. The Wildcat Banks were not backed by specie (meaning gold and silver) and distributed practically worthless currency backed by questionable securities.
Panic of 1837 for kids: Background History of the Specie Circular
There were massive amounts of banknotes in circulation without deposits, or gold or silver to cover them. Andrew Jackson issued the Specie Circular at the end of his presidency to end reckless land speculation. The Specie Circular demanded that payments for the purchase of public lands were made exclusively in gold or silver. It also dried up credit, leading to the Panic of 1837.
Causes of the Panic of 1837: Problems with Trade
Just to add to the financial and economic crisis of the nation the 1836 wheat crop had failed causing hardship for the northern farmers in 1837. The South also suffered because there was a depression in Great Britain and the sale of cotton dropped dramatically. The British depression led to restrictive lending policies by Great Britain that curtailed the flow of money and credit to the United States.
Panic of 1837 for kids: Deposit and Distribution Act of 1836
The Second Bank had been closed. The government had paid their debts. The government needed a plan to distribute surplus government money - it had to be stored somewhere. The plan was to loan the surplus revenues to the states in proportion to their electoral votes - three payments were made to the states. The Deposit and Distribution Act of 1836 placed federal revenues in various banks across the nation.
Causes of the Panic of 1837: Martin Van Buren and the chain of events
The Panic of 1837 gripped the country just 5 weeks after Martin Van Buren was made president - he got the blame for the panic and given the nickname 'Martin Van Ruin'. This is the chain of events and causes that led to the Panic of 1837
When the Specie Circular was issued, people who held paper money immediately went to the banks to get gold and silver in exchange for their paper money in order to pay for the lands bought from the government
The government had to borrow money and call in loans to pay its own necessary expenses
The banks were obliged to sell their property and to demand payment of money due them
People wanted to sell but few were able to buy
Credit dried up, profits plummeted
343 banks closed (out of 850 banks), another 62 banks partially failed
Effects of the Panic of 1837
The effects of the Panic of 1837 were:
Martin Van Buren and the Panic of 1837: "What should be done with the government's money?"
President Van Buren was faced with finding ways to resolve the financial crisis. The immediate question to be answered was "What should be done with the government's money?"
There was no national bank and no one would consider depositing it with the state banks
Henry Clay and his supporters favored the establishment of a new United States Bank
President Van Buren opposed a new national bank - he had shared Andrew Jackson's distrust in the first national banks
Martin Van Buren therefore proposed the establishment of an independent treasury that would be isolated from all banks
Martin Van Buren and the Panic of 1837: The Independent Treasury and the Sub-Treasuries
Martin Van Buren's plans for an independent treasury were based on the idea of building vaults for storing money in Washington and in the leading cities of the nation. The main storehouse (the Treasury) was to be built in Washington and other vaults (sub-treasuries) were to be established in the other cities. The collectors of customs would pay the money collected by them into each of the sub-treasuries. By using this system the government would become independent of the general business affairs of the nation. The Deposit and Distribution Act of 1836 placed federal revenues in various banks across the nation
Martin Van Buren and the Panic of 1837: Opposition to the Independent Treasury
There was considerable opposition to the idea of the treasury.
The Independent Treasury Act failed to pass the House of Representatives in 1837
The Independent Treasury Act failed to pass the House of Representatives in 1838
The Independent Treasury Act failed to pass the House of Representatives in 1839
The Independent Treasury Act was passed by Congress in 1840 but there were many requirements to put the plan into effect and before the Treasury system was in full working order Martin Van Buren was no longer President and the nickname 'Martin Van Ruin' stuck. In 1841 the Whigs, who wanted a new central bank, repealed the law. The Whigs plans to establish a new central bank failed due to a veto by President John Tyler on constitutional grounds. The Democrats won the election of 1844 and re-established the Independent Treasury System in 1846 in the Independent Treasury Act of August 1846 during the presidency of James Polk.
Significance of the Panic of 1837
The significance of the Panic of 1837 was:
Martin Van Buren was blamed for the Panic of 1837 and the economic depression that followed it. He was not re-elected president
The recession continued for nearly 7 years
The system of State banks never fully recovered
The system for the retaining government funds in the United States Treasury and its sub-treasuries continued to exist from 1846 to 1921
The Panic of 1837 for kids
The Panic of 1837 was one of a series of financial crisis to cripple the economy of the United States - refer to the Panic of 1819, the Bank War and the Panic of 1857 for additional facts and information.