Panic of 1837

Definition

The panic of 1837 was a major financial crisis in the United States that led to a severe economic depression. Triggered by a combination of speculative investments, bank failures, and a sudden drop in cotton prices, this crisis significantly impacted the nation's economy and contributed to the political landscape during the evolution of the Second Party System.

5 Must Know Facts For Your Next Test

1. The panic began in May 1837 and quickly spread throughout the economy, resulting in widespread bank failures and business bankruptcies.
2. One major cause was rampant speculation in land and other investments, leading to an unsustainable economic bubble that burst when prices collapsed.
3. The crisis resulted in high unemployment rates, with many people losing their jobs and homes as businesses closed and banks failed.
4. As a response to the economic downturn, Martin Van Buren advocated for a system of independent treasury that would help stabilize finances without relying on banks.
5. The panic of 1837 significantly influenced public opinion and electoral politics, leading to a decline in support for the Democratic Party and paving the way for the rise of the Whig Party.

Review Questions

• How did the panic of 1837 affect Martin Van Buren's presidency and his approach to economic policy?
  • The panic of 1837 had a profound impact on Martin Van Buren's presidency, as it erupted shortly after he took office. Facing a struggling economy with widespread bank failures and high unemployment, Van Buren sought solutions that included advocating for an independent treasury system. His approach reflected a belief in minimal government intervention in the economy, but his efforts were largely met with criticism as many Americans blamed him for the crisis itself.
• Discuss the role of speculation in contributing to the economic instability that led to the panic of 1837.
  • Speculation played a critical role in creating the conditions for the panic of 1837. During this period, many investors engaged in risky practices by heavily investing in land and other assets, driven by unrealistic expectations of continued price increases. When these inflated values could not be sustained, it triggered a rapid collapse in prices, leading to widespread financial distress. This speculative bubble highlighted the volatility of early American markets and ultimately contributed to the financial crisis.
• Evaluate how the panic of 1837 influenced political dynamics between the Democratic Party and its opposition during the evolution of the Second Party System.
  • The panic of 1837 had significant implications for political dynamics during this period. As economic hardships mounted, public dissatisfaction with the Democratic Party increased due to perceptions that they mishandled financial matters. This discontent facilitated the emergence of the Whig Party as a credible opposition, advocating for more active government involvement in economic recovery. The economic crisis thus reshaped party alignments and contributed to a realignment in American politics, signaling growing divisions over issues of governance and economic policy.

Related terms

Martin Van Buren: The eighth President of the United States who faced the panic of 1837 shortly after taking office and struggled to manage its economic fallout.

Speculation: The practice of engaging in risky financial transactions with the hope of profiting from future price fluctuations, which played a key role in the economic instability leading up to the panic.

Democratic Party: The political party that emerged from the Democratic-Republicans, which was in power during the panic and largely associated with policies that contributed to the economic turmoil.