Expansion and Conflict

by William Edward Dodd

Van Buren had begun badly. But worse was to follow. The receipts from federal land sales dropped from $24,000,000 in 1836 to $6,000,000 in 1837, and the total income of the Government declined from $50,000,000 to $24,000,000 in the same year; and the expenditures of the Treasury outran the receipts during 1837 and 1838 by more than $21,000,000. A deficit of $300,000,000 for two successive years in our time would not be worse than the deficit of the unpopular successor of Andrew Jackson. From 1833 to 1836 there had been an annual surplus equal sometimes to the total expense of the Government. The national debt had been paid in full and money had been loaned to the States without interest or security. There was to be no more national debt and no more paying of interest to hard-driving capitalists; but Van Buren borrowed $34,000,000 in two years to meet the ordinary expenses of his Administration.

The honors of the time were, and have since been, bestowed upon Jackson, and all the blame of things was, and has since been, laid upon the shoulders of Van Buren. But the fault was not Van Buren's. A number of causes had produced this surprising and distressing state of affairs. After the great success of the Erie and other canals in the East, Western States entered upon an era of canal building which the richest of communities could ill have borne. Railroads were beginning to create markets for Eastern farmers. The Westerners, therefore, sunk millions of their hard earnings in railways which paralleled their canals or projected into wildernesses. Between 1830 and 1840 these ventures of the West, from Michigan to Louisiana, absorbed hundreds of millions of capital. Illinois borrowed $14,000,000 when her total annual income was hardly more than $250,000; Mississippi borrowed $12,000,000 on a yearly income a little less than that of Illinois. The States had mortgaged their futures for decades to come. This was especially true of Western communities; but Eastern States like Pennsylvania, Virginia, and South Carolina were also in debt for similar amounts. Everybody thought the resources of the United States were inexhaustible; and everybody seemed willing to tax future generations beyond all precedent in order to develop these resources.

The depositing of the federal funds in state banks by Jackson had greatly stimulated speculation. Public interest in banks, already great, increased enormously. Forty new banks were created in Pennsylvania in a single year. State banks increased their capital and extended their operations. In two years the bank notes in circulation increased from $95,000,000 to $140,000,000; loans and discounts rose from $324,000,000 to $457,000,000. The National Bank, which had curtailed business in order to embarrass the country and particularly President Jackson, quickly changed its tactics, and, sailing under a charter from the State of Pennsylvania, kept pace with its five hundred rivals. To be sure the Federal Constitution forbade the States to issue bills of credit. But the States incorporated banking companies which issued the forbidden notes by the million, and the Supreme Court of the United States, now that Marshall was dead and the personnel of its membership had undergone a change, declared the practice lawful.

States indorsed or participated in the proceedings of the banks, the banks loaned to other corporations or to private individuals on such security as land, slaves, improvements already made, or the personal credit of men otherwise deeply in debt. The flood of money was thus, before 1837, invested in lands and houses or railroads and canals which could neither pay dividends nor return the principal for several years. It seemed that when the Federal Government paid the last of its debt, the States eagerly pursued the opposite principle and created the greatest debts possible.

Though the people of the United States joined in all these wild ventures, they were not solely responsible. Europe, especially England, had been anxious to lend. The Erie Canal had been built upon borrowed capital, and it had paid good dividends. The old National Bank, now going out of business, had placed $25,000,000 of its stock in Europe, and the holders had received most liberal returns. American investments were quoted as “excellent” by the Baring Brothers of London to their thousands of customers. And why not? The Federal Government had recently paid the last dollar of its two huge debts, more than $80,000,000 for the cost of the Revolution and $110,000,000 for the cost of the War of 1812, and the rate of interest had often been as high as eight per cent. Was there a similar example in all history? The bad reputation of 1783-1800 for debt-paying had been lived down.

Van Buren estimated the amount of money due by States and corporations to English creditors at $200,000,000. His estimate was probably not greatly exaggerated. Certainly as much as $12,000,000 in interest was due each year to English creditors. The merchants of the great towns regularly bought their goods on long time, sold them on time to the shopkeepers of the villages and hamlets, and these in turn sold on credit to their customers. Not less than $100,000,000 was thus distributed over the country. It was due any day in London or Liverpool. The world seemed to “take stock” in the new Republic, particularly when the returns were large and prompt in appearing. And now that the Federal Government was not a borrower, the States became the heirs of the confidence of the capitalists who, not comprehending the difference between the National and the State Governments in the United States, expected that the authorities in Washington would bring due pressure to bear on local authorities that might turn indifferent when crops were bad.

All these things led to an inflated state of things. Jackson had seen the dangerous tendency, and his specie circular had been applied in 1836 in the hope of mending matters. But the people who bought lands had no gold or silver. The effect of the circular was to compel Western bankers to call on their Eastern correspondents for metallic money. All the specie in the Eastern vaults amounted to only $19,000,000, a sum not in excess of what it had been twenty years before, when the paper money in circulation was not half so great. Just as the West asked for more hard money English bankers and other business men called sharply for payment of outstanding debts due by leading business men in the East. Both demands could not be met at the same time. The bubble had been pricked.

To make matters worse, the wheat crop of the Middle States and of the South failed utterly, and the farmers were compelled to import grain on credit for the next year's seeding. The cotton output was large, but the price fell from twenty to ten cents a pound. Corn and meat were plentiful in the West; the means of transportation were, however, lacking. There was famine and plenty in the land at the same time. Business came to a standstill, all forward movements stopped, and the banks closed their doors.

From a winter of greatest plenty and most amazing expectations the people, particularly the poor of the cities and mill towns, passed into a summer and autumn of positive want and starvation. With flour at twelve dollars a barrel, the New York price, and with wages declining every day or industrial operations suspended altogether, the lot of the worker was hard. Riots were of weekly occurrence, and the greatest business houses of New York, Philadelphia, and even New Orleans, where cotton was expected to save men, declared themselves bankrupt and closed their doors. Men who had clamored against Jackson or Biddle in the time of distress three years before now looked upon that crisis as only a flurry. Everything seemed out of joint and the future gave no assurance of speedy recovery. The East, which had condemned the West for their stay laws against the panic of 1819, now clamored for a federal stay law and urged Van Buren to suspend the specie circular. The President refused to offer any relief, and other failures and other risks followed. Before the summer had well begun every bank in the country suspended specie payment, and a little later local business men's associations issued notes or due bills in small denominations which were accepted as money. East, South, and West the commercial and financial panic held the country fast in its grip. Speculations fell flat, obligations were void, and men turned to the simpler forms of life to regain their equilibrium. Barter took the place of former methods of exchange.

People blamed the banks; some cried out that the monopolistic methods of business had been the cause. The Whigs maintained that the panic and distress were due to the blunders and crimes of the party in power. Benton in reply declared that the paper money and stock-jobbing systems of the last few years had been the cause. Van Buren called Congress together in extra session in September, 1837, in order, as he said, to devise means of saving the Government itself from bankruptcy. But he could not place the blame on the preceding Administration, as his opponents delighted to do; he only said it was all because of “over-action in all departments of business.” Congress suspended the distribution of the surplus revenue among the States, issued notes to the amount of ten million dollars to meet the obligations of the Government, and took measures for the safety of the public funds in banks which could not pay their debts. Gradually during the next year the signs of recovery appeared. Rise of prices in Europe, a good cotton crop, and the passing of the panicky state of mind enabled the banks to resume specie payments, and the mills of the East to open their doors. But the public was in doubt whether the ruin of the National Bank, the issuing of the specie circular by Jackson, or the lack of ability on the part of Van Buren had been the cause of the calamities of the year 1837. And as it took years for men and business houses to regain their former mutual confidence, there was soreness and hesitation everywhere until after 1840.