Panic of 1837: New York City banks fail, and unemployment reaches record levels.
The Panic of 1837 was a financial crisis in the United States that touched off a major depression, which lasted until the mid-1840s. Profits, prices, and wages went down, Westward expansion was stalled, unemployment went up, and pessimism abounded.
The panic had both domestic and foreign origins. Speculative lending practices in the West, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Britain were all factors. The lack of a central bank to regulate fiscal matters, which President Jackson had ensured by not extending the charter of the Second Bank of the United States, was also key. This ailing economy of early 1837 led investors to panic – a bank run ensued – giving the crisis its name. The run came to a head on May 10, 1837, when banks in New York City ran out of gold and silver. They suspended specie payments and would no longer redeem commercial paper in specie at full face value. A significant economic collapse followed. Despite a brief recovery in 1838, the recession persisted for approximately seven years. Nearly half of all banks failed, businesses closed, prices declined, and there was mass unemployment. From 1837 to 1844 deflation in wages and prices was widespread. The lack of deposit insurance deepened the Panic. By 1850 the economy was booming again, a result of increased specie flows from the California Gold Rush.