magiccarouselsundays.com – The Panic of 1837, one of the most severe economic downturns in early American history, struck shortly after Martin Van Buren became the eighth president of the United States. His presidency, which began with promise as the successor to the popular Andrew Jackson, was soon overshadowed by this financial crisis that plunged the country into a prolonged depression. The Panic of 1837 tested Van Buren’s leadership, and his response to it defined his time in office, as he navigated political and economic turmoil while attempting to uphold the principles of Jacksonian democracy.
The crisis posed significant challenges for Van Buren, a firm believer in limited government intervention in the economy. His response to the panic has been debated by historians and economists ever since, as it shaped not only the future of his presidency but also the political landscape of the United States in the years that followed.
Background: The Economic Boom and Policies of Jackson’s Presidency
The Bank War and Jackson’s Legacy
The seeds of the Panic of 1837 were sown during the presidency of Andrew Jackson, Van Buren’s predecessor and political mentor. Jackson’s aggressive stance against the Second Bank of the United States, a powerful national institution that regulated currency and credit, played a key role in the lead-up to the crisis. Jackson viewed the Bank as a tool of the elite, wielding too much influence over the nation’s economy. In 1833, Jackson vetoed the renewal of the Bank’s charter and withdrew federal deposits, instead placing them in various state-chartered banks, known as “pet banks.”
Jackson’s policies were popular among his supporters, particularly farmers and small business owners who resented the Bank’s control over the nation’s credit. However, the decentralization of the banking system led to an explosion of speculative lending. With fewer restrictions on lending practices, state banks issued excessive amounts of paper currency, fueling an economic bubble, particularly in land speculation. This speculative boom, coupled with inflationary pressures, created a fragile economic foundation for the nation as Van Buren took office in 1837.
The Specie Circular
Another significant factor leading to the Panic was Jackson’s issuance of the Specie Circular in 1836. This executive order required that payment for government land purchases be made exclusively in gold and silver (specie), rather than paper currency. Jackson believed that this policy would curb rampant land speculation, but in practice, it drained the nation’s specie reserves and destabilized the financial system. Many banks, already stretched thin by speculative lending, were unable to meet the demand for specie redemption, contributing to a financial panic.
As Van Buren prepared to assume the presidency in 1837, the nation’s economic outlook appeared precarious, with warning signs of an impending collapse becoming increasingly evident.
The Onset of the Panic: Van Buren Inherits a Crisis
The Collapse of the Banking System
Van Buren took office on March 4, 1837, just as the economic bubble created during Jackson’s presidency was about to burst. The collapse began in May 1837, when a major financial panic swept through the nation’s banking system. The New York banks, which were at the center of the country’s financial industry, suspended specie payments, meaning they could no longer redeem paper currency for gold or silver. This triggered a ripple effect across the nation, as banks in other states followed suit. The suspension of specie payments eroded public confidence in the banking system, leading to widespread bank failures.
By the summer of 1837, the economic collapse was in full swing. Businesses failed, unemployment surged, and prices for basic goods plummeted. The Panic devastated farmers, workers, and small business owners, many of whom had supported Jackson and Van Buren’s Democratic Party. The speculative frenzy in land purchases came to an abrupt halt, as people could no longer secure loans or afford to buy property.
Van Buren’s Inaugural Address and Initial Response
When Van Buren delivered his inaugural address in March 1837, the economy was already teetering on the edge of collapse. However, Van Buren made no mention of the looming economic crisis in his speech. Instead, he focused on continuing Jackson’s policies, including opposition to the national bank and a commitment to states’ rights and limited federal power.
Van Buren’s initial response to the Panic was cautious, as he was ideologically committed to the principles of Jacksonian democracy, which emphasized limited government intervention in the economy. Like Jackson, Van Buren believed that the federal government should not play a direct role in regulating the economy or propping up failing banks. Instead, he argued that the economic system would eventually correct itself through the natural workings of the free market.
Van Buren’s Policies During the Panic: The Independent Treasury System
The Sub-Treasury Plan
As the Panic deepened, Van Buren faced increasing pressure to take action. However, he remained steadfast in his belief that government intervention would do more harm than good. In response to the crisis, Van Buren proposed the creation of an Independent Treasury System, also known as the Sub-Treasury System, which would separate the federal government’s finances from private banks.
Under the Independent Treasury System, the federal government would no longer deposit its funds in state-chartered banks (the pet banks that Jackson had favored). Instead, government revenues would be stored in government vaults and handled exclusively by federal officials. This system was designed to prevent the government from contributing to speculative bubbles by ensuring that its funds were not used for speculative lending.
Van Buren’s Sub-Treasury Plan was deeply controversial. Many members of Congress, particularly Whigs, opposed the plan, arguing that it would only exacerbate the economic crisis by tightening the money supply. Critics also accused Van Buren of doing too little to aid struggling banks and businesses. Despite the opposition, Van Buren remained committed to the idea of separating government from the banking sector, seeing it as a way to restore stability and prevent future financial crises.
Economic and Political Consequences
The Independent Treasury System was eventually passed by Congress in 1840, but by that time, the damage from the Panic had already been done. The economic depression that followed the Panic of 1837 lasted for several years, with unemployment remaining high and business failures continuing to mount. Van Buren’s refusal to support direct government intervention in the economy led to widespread suffering, particularly among the working class, who had been hardest hit by the depression.
Van Buren’s handling of the Panic also had significant political consequences. His popularity, once buoyed by his association with Jackson and the Democratic Party, plummeted as the economic crisis dragged on. The Whig Party, which had formed in opposition to Jacksonian democracy, gained strength by criticizing Van Buren’s inaction and advocating for more active government involvement in the economy. The Whigs painted Van Buren as out of touch with the needs of ordinary Americans, and they capitalized on the widespread dissatisfaction with his presidency.
Van Buren’s Legacy and the Panic of 1837
The Election of 1840
The economic hardship caused by the Panic of 1837 played a major role in Van Buren’s defeat in the 1840 presidential election. The Whigs, led by William Henry Harrison, ran a highly effective campaign that portrayed Harrison as a man of the people and Van Buren as an elitist who had failed to address the economic suffering of the American public. The election, which became known as the “log cabin and hard cider” campaign, was a landslide victory for Harrison and the Whigs.
Van Buren’s defeat in 1840 marked the end of his presidency, but his legacy continued to be shaped by his response to the Panic of 1837. Many historians have criticized Van Buren’s handling of the crisis, arguing that his commitment to limited government prevented him from taking the necessary steps to mitigate the effects of the depression. Others, however, have praised Van Buren’s principled stance, seeing his refusal to bail out banks and businesses as a defense of sound economic principles.
The Long-Term Impact of the Independent Treasury System
Despite the political and economic fallout from the Panic of 1837, Van Buren’s Independent Treasury System remained in place for several decades. It was ultimately a forerunner to the modern system of federal financial management, and it reflected Van Buren’s belief in the need to protect the government from the speculative excesses of the private sector. Although the Sub-Treasury System did not solve the immediate problems of the 1837 depression, it laid the groundwork for future reforms in government finance.
In the years following Van Buren’s presidency, the debate over government intervention in the economy would continue to shape American politics. The Panic of 1837, and Van Buren’s response to it, became a pivotal moment in the ongoing struggle over the role of government in regulating the economy—a struggle that remains central to American political discourse to this day.
Conclusion
Martin Van Buren’s presidency was defined by the Panic of 1837, a financial crisis that tested his leadership and left a lasting impact on the American economy and political landscape. Faced with the collapse of the banking system and a deepening depression, Van Buren’s response was shaped by his commitment to the principles of Jacksonian democracy: limited government intervention, fiscal responsibility, and a belief in the self-regulating power of the market.
While his policies, particularly the Independent Treasury System, were controversial at the time and contributed to his political downfall, they also reflected Van Buren’s consistent adherence to his economic and political philosophy. The Panic of 1837 ultimately marked a turning point in American history, influencing debates over economic policy and government regulation for years to come, and Van Buren’s role in navigating that crisis continues to be a subject of historical reflection.