Andrew Jackson's Bank War

The 1837 Panic: Andrew Jackson's Banking Legacy

On May 10, 1837, the New York City banks refused to redeem paper currency for gold and silver, marking the beginning of a devastating economic downturn. Andrew Jackson, the seventh President of the United States, had been waging a war on banks for years, and his actions ultimately led to this catastrophic event. In Washington D.C., Jackson's policies were about to unleash a financial storm that would ravage the nation.

What Everyone Knows

Most people think that the 1837 panic was a result of natural economic fluctuations, with some attributing it to the usual boom-and-bust cycle of the time. The standard story goes that the panic was an unfortunate event, but one that was inevitable given the economic conditions of the time. However, this narrative overlooks the significant role played by Andrew Jackson's banking policies, which set the stage for the economic disaster that followed.

What History Actually Shows

Andrew Jackson's war on banks began in 1832, when he vetoed the re-charter of the Second Bank of the United States, a move that destroyed the central banking system and left the country without a unified monetary policy. Historian Arthur Schlesinger Jr. notes in his book "The Age of Jackson" that this decision was a crucial factor in the lead-up to the panic. On July 11, 1836, Jackson issued the Specie Circular, which required that all land purchases be made in gold or silver, further exacerbating the economic tensions. According to historian Sean Wilentz, author of "The Rise of American Democracy", this policy led to a sharp decrease in land sales and a subsequent reduction in government revenue. By 1837, the economy was on the brink of collapse, with banks failing and businesses shutting down. As historian Daniel Walker Howe notes in "What Hath God Wrought", the panic lasted for five years, from 1837 to 1842, and was one of the longest and most severe economic downturns in American history. Jackson's policies, particularly his war on banks, played a significant role in the panic, and his actions on January 8, 1835, when he paid off the national debt, actually reduced the government's ability to respond to the economic crisis.

The Part That Got Buried

Historians like Arthur Schlesinger Jr. and institutions such as the Federal Reserve have contributed to the suppression of this story by focusing on other aspects of Andrew Jackson's presidency. The decision to emphasize his populist policies and military victories over his economic missteps has led to a lack of attention on the devastating effects of the 1837 panic. Specifically, the fact that Jackson's veto of the re-charter of the Second Bank of the United States in 1832 was a major catalyst for the panic has been consistently downplayed. This is partly because the narrative of Jackson as a champion of the common man has been more compelling to historians and the general public. As a result, the concrete reasons behind the panic, including the withdrawal of government funds from the bank and the subsequent credit crunch, have not been thoroughly examined.

The Ripple Effect

The 1837 panic led to a significant increase in business failures, with thousands of companies going bankrupt. This had a devastating impact on the lives of ordinary Americans, who saw their livelihoods destroyed and their economic security threatened. The panic also led to a decline in international trade, as foreign investors lost confidence in the American economy. One specific modern thing that traces directly back to this event is the creation of the Federal Deposit Insurance Corporation (FDIC) in 1933, which was established to prevent bank runs and maintain stability in the financial system. The FDIC's existence is a direct response to the kind of bank failures that occurred during the 1837 panic.

The Line That Says It All

The 1837 panic resulted in a five-year depression that saw GDP contract by over 10 percent and left a lasting impact on the American economy.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to the 1837 panic and Andrew Jackson's economic policies.