Panic of 1837

Definition

The Panic of 1837 was a severe economic crisis that led to a major recession in the United States, triggered by a combination of speculative land investments, bank failures, and the decline in cotton prices. This financial panic marked a significant downturn during Andrew Jackson's presidency, showcasing the volatility of the economy and the challenges facing the emerging democratic landscape of the nation.

5 Must Know Facts For Your Next Test

1. The Panic of 1837 began shortly after Martin Van Buren took office as president, but it was rooted in policies set during Andrew Jackson's presidency, especially his opposition to the Second Bank of the United States.
2. A significant factor in the panic was rampant speculation in land purchases, which led to inflated prices and a subsequent crash when investors could not pay their debts.
3. Many banks failed during this period due to overextension and poor lending practices, resulting in widespread loss of savings for many Americans.
4. The panic caused a major economic downturn that lasted for several years, leading to high unemployment and widespread hardship across various sectors.
5. This economic crisis had political ramifications as it shifted public sentiment against the Democratic Party, eventually contributing to the rise of the Whig Party.

Review Questions

• How did the policies of Andrew Jackson contribute to the causes of the Panic of 1837?
  • Andrew Jackson's policies significantly influenced the financial landscape leading to the Panic of 1837. His opposition to the Second Bank of the United States undermined financial stability and regulation. By favoring state-chartered banks and promoting land speculation, Jackson's administration fostered an environment ripe for economic turmoil. This laid the groundwork for rampant speculation that ultimately led to bank failures and widespread economic distress.
• Discuss the impact of the Panic of 1837 on American society and politics during this period.
  • The Panic of 1837 had profound effects on both American society and politics. Economically, it led to significant unemployment and widespread hardship as businesses collapsed and banks failed. Politically, it shifted public opinion against the Democratic Party, which was associated with the policies that contributed to the crisis. This dissatisfaction helped pave the way for the emergence of alternative political movements, particularly the Whig Party, which sought to address economic issues and promote government intervention in the economy.
• Evaluate how the economic turmoil caused by the Panic of 1837 influenced future economic policies in the United States.
  • The economic turmoil from the Panic of 1837 had lasting effects on U.S. economic policies in subsequent years. The crisis highlighted the need for better regulation within the banking system and prompted debates about monetary policy. In response, there were calls for a more centralized banking system and greater oversight to prevent future panics. This eventually influenced reforms in banking regulations and monetary practices that shaped how American finance operated moving forward, ensuring more stability in an increasingly complex economy.

Related terms

Speculation: The practice of buying assets, such as land or stocks, with the hope that their value will increase, often without regard for their fundamental value.

Banking System: The network of banks and financial institutions in the U.S. that manage money supply, provide loans, and facilitate economic activity.

Cotton Economy: The agricultural system centered around cotton production, which was a key driver of the U.S. economy in the early 19th century.