The Panic of 1837: Lessons from America's First Economic Crash
Whig Party political poster: Problems of Unemployment in the United States, 1837. Library of Congress, Washington
“…and the rain descended, and the floods came, and the winds blew and beat upon that house; and it fell; and great was the fall of it.”
Matthew's Gospel, 7: 27
Matthew's Gospel, 7: 27
Experience stories. America has always had a complicated relationship with money. America is a country built on ambition and risk, where that same thirst for economic growth is expressed in unbridled speculation, followed by collapse. And if you think that today's economy is very unstable - with mounting debts, and inflationary anxiety, and fears of an impending recession - then we have been through all of this before. And the Americans have been through it too. And much earlier than us, Russians.
Thus, the first large-scale economic crisis, called the "Panic of 1819", was connected with the consequences of the War of 1812. There was a fall in the price of cotton, which England stopped buying. The problems in the cotton market coincided with a reduction in credit, so the young American economy suffered seriously. Many farm owners lost their rights to buy them. A number of banks went bankrupt.
The Panic of 1819 lasted until 1821, and its effects were felt most strongly in the West and South. All this led to President Andrew Jackson (the seventh president) taking a number of measures that eventually became a “time bomb”. In addition, the “Panic of 1819” made many Americans understand the importance of public policy in their lives. However, no one learned the lessons from these events, which eventually led to one of the most devastating economic crises in US history – the “Panic of 1837”.
Then the U.S. economy didn't just falter. It plummeted. Banks went bankrupt. Unemployment skyrocketed, and the price of cotton, America's most valuable export, collapsed. People lost their homes, fortunes, and entire businesses. And the interesting thing is, it all happened so fast. What caused all this, and is there anything similar to what we're seeing today?
The situation, however, was very simple and clear: speculation, cotton trade and poor banking. However, the United States in 1837 was barely sixty years old, a young country that had just experienced a revolution and several earlier experiments in building an effective economic model. But… there was no experience accumulated by the previous time. The economic systems of the states were fragile and largely regional. The idea of a single national economy was still being formed, and trust in the central institutions of power was quite shaky. What a truly stable economy looked like, no one knew then, and the population consisted mainly of peasants with a paternalistic mentality characteristic of the peasantry. And this “youth” and inexperience of the country, of course, mattered.
A more historically mature country might have had better safeguards, better oversight, or a better understanding of the long-term consequences of economic manipulation. And in the years leading up to 1837, the United States was booming, with Europeans flocking there in droves. The economy was booming. Land speculation was rampant, especially in the South and West. Banks handed out loans like Easter candy, often backed by nothing more than a handshake.
In July 1832, U.S. President Andrew Jackson vetoed a bill that would have renewed the charter of the Second Bank of the United States, which was set to expire in 1836. The Second Bank of the United States acted as a note issuer and fiscal agent for the government. Because of the denial of a federal charter, the Second Bank of the United States was licensed in Pennsylvania and operated as a regional bank from 1833. But the loss of its federal bank status resulted in the withdrawal of U.S. Treasury funds from its accounts, after which it could no longer lend to banks or planters.
As a result, without this bank stabilizing the entire financial system, the other banks simply became swindlers. And how could they hold on, since no one controlled them now. They were called “wild” banks for a reason, and it was they who financed the crazy land purchases. Meanwhile, President Jackson made one of the most dramatic fiscal decisions in American history, namely, he demanded that all land purchases be made only with gold or silver, and not with paper money. The decision was called the “Money Circular.” And although it was intended to slow down speculation, in fact the “circular” caused a real “bank run,” which deprived them of the hard currency they needed to stay afloat.
Then came the "hour X": cotton prices collapsed as Britain, the United States' largest trading partner, cut back on cotton purchases. World demand for cotton also fell. Understandably, under these circumstances, the heavily indebted southern cotton plantations began to default one after another. Banks panicked. Credit dried up. Businesses went bankrupt. And so America found itself in the midst of a full-scale economic collapse.
The depression that followed the Panic of 1837 lasted for nearly a decade. Unemployment rates reached 25 percent in some cities. Real estate markets collapsed. Construction projects stalled. Riots broke out in New York City. Bread lines formed in major cities. Confidence in the American banking system and the government’s ability to manage the economy was seriously undermined.
The Times (1837 US cartoon of the financial panic of that year), Edward Williams Clay (1799–1857). Blame is clearly placed on the Treasury policies of Andrew Jackson, whose hat, spectacles and clay pipe with the word “Glory” visible in the sky. Clay illustrates the effects of the depression in a street scene, emphasizing the plight of the working class. A panorama of offices, tenements and shops reflects the hard times. The Custom House, with its sign “All Bonds to Be Paid in Specie,” stands idle. Across the street, the Mechanics’ Bank, with its sign “No Specie Payments Here,” is crowded with frantic customers. The main figures (from left to right) are a mother with her baby on a straw mat, a drunken Bowery ruffian, a militiaman (seated, smoking), a banker or landowner meeting a destitute widow and child, a barefoot sailor, a driver or farmer, a Scottish mason (seated on the ground), and a carpenter. They contrast with the successful lawyer "Peter Pillage" who is being collected by an elegant carriage in the far right corner. In the background is a river, Bridewell debtors' prison, and an almshouse. A punctured balloon falls from the sky with the inscription "Safety Fund". The cartoon was released in July 1837. The flag waving on the left bears the sarcastic words "July 4th, 1837, the 61st Anniversary of Our Independence." Library of Congress, Washington, D.C.
And so it was that Martin Van Buren, the eighth president of the United States, had to deal with the aftermath at the very time the panic began. And he decided that the best policy was laissez-faire—an economic philosophy that means “let it be” or “hands off,” advocating for minimal government intervention in the market. He believed that the government should stay out of the way, allowing the market to correct itself.
Political opponents reviled him, and economic woes helped fuel the rise of the Whig Party. The new political coalition opposed Jackson's policies and advocated a stronger role for Congress, federal investment in infrastructure, and a more centralized approach to economic growth.
Overall, 1837 exposed the fragility of a rapidly expanding, poorly regulated financial system. And it showed how quickly optimism can turn to panic when people lose confidence in the institutions designed to protect their money. And now, as Americans increasingly look back to 2008 or 2023, they are once again fearing economic collapse. Yet economic fear is one of the oldest weapons in the political game. It unites people. It demands action, or at least attention. And it’s not such a bad thing that it is deeply emotional. Money isn’t just about math. It’s about control. Stability. Security. The fear of losing what you have, or never getting what you were promised.
From the gold standard debates of the late 1970th century to the stagflation fears of the XNUMXs, politicians and pundits have long exploited economic uncertainty to gain leverage over society. But they do the same today. Turn on news, and you'll hear warnings of economic doom on every issue under discussion: inflation, home loans, Social Security, climate, politics, war, taxes. The rhetoric changes, but the underlying fear remains the same: what if the whole system collapses?
The Panic of 1837 reminds Americans — not all of them, of course, but those with a college education — that their country has seen this kind of crash before. More than once. Economic crises are a recurring theme in American history. They should know that, first, unchecked speculation leads to disaster. It always has and always will. Whether it’s Mississippi land, shale gas stocks, subprime mortgages, or cryptocurrency memes named after dogs, when the market gets too hot and people borrow against the future without a clear plan for repayment, economic collapse is inevitable.
Second, central regulation is essential. In times of instability, you need reliable support instruments, not just pretty slogans. Third, trust is everything. When people stop trusting banks, government, or the currency itself, the entire system can collapse faster than anyone expects. That is why clear communication and feedback between society and government are so important – which, by the way, also applies to our society. And it is necessary not only to manage markets, but also to manage thinking. And finally, economic recovery takes time. Crisis comes quickly. Restoring trust is a slow process. Van Buren’s refusal to intervene may have been philosophically correct, but it was also catastrophic.
And today, politicians are increasingly talking about the “death of the dollar” (and countries around the world are slowly but surely switching to national currencies), financial authorities are warning of hyperinflation, and others are saying that the huge national debt will destroy America within a decade. In any case, this is nothing more than fear-based governance of society. As a result, Americans are constantly caught between extremes: either everything is fine, or they are one step away from financial collapse. And Russians are increasingly afraid of the same thing.
But history tells us that the truth lies somewhere in between. Yes, our economy has its vulnerabilities, too. Yes, there is mismanagement, and yes, speculation still exists on both sides of the pond. But today we have institutions, data, and tools that did not exist in 1837. So economic fear is sold today just like any other commodity. Through the media, of course. And when the headlines sound the alarm too loudly, we risk panicking again, which is to say, turning off the intelligence that most people don’t have much of anyway. And interest rates, housing affordability, inflation, layoffs, technological collapses—they are all real. But so is the opportunity to respond differently than we, and those same Americans, have done in the past. We can insist on smarter regulations that protect innovation and stability. We can demand more transparency from both government and business leaders.
It’s understandable that we all crave certainty. We fear failure. And we look for someone — anyone — to tell us what will happen next. But perhaps the real lesson of the past isn’t predicting the future. After all, history isn’t there to punish us — it’s there to temper our ambitions. So the next time someone shouts “failure,” ask yourself: Is this déjà vu, or is this just another chance to get it right?
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