HERITAGE: THE PANIC OF 1837

The history of banking in the United States has been a turbulent one, as the fledgling nation learned the vagaries of politics, public finance, and government intervention. This process of trial and error was deeply intertwined with the evolving political landscape and the government's attempts to establish a stable economy in a rapidly developing country. This led to a series of boom-and-bust cycles, debates over the role of government in the economy, and a gradual, often painful, evolution of banking institutions and regulations.

The Panic of 1837 represents one of the most turbulent events of its era, if not in all American history. The crisis stemmed from President Andrew Jackson's anti-banking policies and, more specifically, his battle with the Bank of the United States. Originally championed by Alexander Hamilton, the Bank of the United States was zealously promoted by prominent businessmen and politicians, such as John Jacob Astor, Stephen Girard, and John Caldwell Calhoun. This financial venture was one of the first attempts in America to establish a central bank operated by the government. Jackson opposed its operation for an assortment of reasons, but his foremost objection was his belief that a central bank was both unconstitutional and "dangerous to the liberties of the people." He also blamed the concern for contributing to the Panic of 1819, as it had lent far too much money, and then stockpiled gold to save itself at the height of the emergency, thereby sacrificing many small banks and their patrons.

In 1833, Jackson delivered a crushing blow to the bank's power by halting the deposit of federal funds into the institution. Instead, he created a list of approved banks that the government would conduct business with; therefore, the Bank of the United States' services were no longer required. Cotton prices soared, and easily obtainable credit along with a multitude of land opportunities in the newly settled West caused the market to inflate exponentially during 1834-36. Unfortunately, this inflation was only sustainable for so long, and the economy soon ruptured in late 1836. The lands in the West which had seemed so appealing just months earlier became unmarketable.

Banks began to feel the effects of this disaster in 1837, and on May 4, runs on financial organizations began in New York. Customers hastened to exchange their soon-to-be worthless banknotes for hard gold and silver. Because of the volume of government-chartered banks, gold, silver, and coin reserves had quickly become depleted. Over 200 institutions in both the North and South were forced to shutter their doors. Our upcoming July 27 Summer U.S. Currency Obsolete Banknotes Showcase Auction includes a comprehensive offering of notes from concerns which met a variety of fates during this chaotic period.

Countless institutions collapsed simply because they overextended themselves, especially across the South. For example, the Chattahoochee Rail Road & Banking Co. folded, predominantly because of the large loans it offered to stockholders which were not repaid punctually.

We are privileged to offer an example from the bank in our current auction. This piece is representative of the battle to keep funds available which many financial organizations faced and lost during the Panic of 1837. Other unfortunate cases involved certain banks' inability to pay specie (hard coinage) on their notes. This was the dilemma that the Bank of Vicksburg found itself embroiled in.

Bank of Vicksburg

Incorporated on May 3, 1837, just a day before the run on banks in New York commenced, this company was forced to shut down after its charter was revoked in 1840. One important offering in this Obsolete Showcase Auction is an impressive $15 Proof from the institution.

Obsolete Showcase Auction

While the lifespans of these two Southern banks were short, they were not the most disappointing cases of banking failure of their time. Some institutions were initiated in 1837 and did not last more than a year. The Bank of Saline, which opened in 1837 and only operated until 1838, highlights this type of situation. The numerous heavily worn examples from this bank which survive today, however, suggest that the establishment's notes were a popular form of payment during the short time the company was in business. A well circulated ace in our July auction demonstrates this assertion. This piece is distinct for its use of the "Indian Princess" vignette at right which would later appear on the T35 Confederate Treasury Note of 1861.

The Panic of 1837 crippled the national economy and destroyed countless small businesses with loyal customers. However, the shortage of specie during this period contributed to the important rise of fractional banknotes. During this tumultuous period, fractionally denominated currency became increasingly utilized in day-to-day transactions as coinage and precious metals shrank in availability. These fractional issuances facilitated everyday purchases. The City of Detroit is represented in our current auction with this fascinating piece that provides a glimpse into the innovations which were propelled forward. At lower right is the back of a Spanish 2 Reales coin, which was equivalent to the 25¢ denomination of the note. Fractional emissions provided small but much-needed relief to business owners and banks nationwide. These private issue fractional notes served as proof of concept for the Fractional notes (Fractional Showcase July 20) issued by the US government in the early years of the Civil War.

Not until 1843 did circumstances improve, primarily because the recession that had plagued the country for six years finally ended. Then President Martin Van Buren initiated several crucial policies which were characterized by restrained government intervention. Van Buren developed a more balanced federal budget and implemented the Independent Treasury. Private banks could no longer control the government's fiscal endeavors, which reduced volatility. The nation would face new financial calamities in the following decades, but this particular disaster was highly influential. The Panic of 1837 dramatically altered the landscape of the banking system in America, leading to heightened controls on government and private banking while simultaneously lessening governmental influence on Americans' lives. These advances attempted to reduce further conflict and embodied the revolutionary ideals which pervade American history. They are a tribute to the resiliency of the American spirit and a symbol of great determination to survive seemingly insurmountable hardships.

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