The Panic of 1837 was a policy-induced depression. It was the second longest and second deepest depression in US history, only superseded by the Great Depression of the 1930s. Its causes were President Andrew Jackson’s distribution of the federal surplus, in which funds were removed from banks and sent to states. This reduced aggregate reserves available to support loans and bank notes nationwide, and with the inefficient transfer over poor roads, it took considerable time for banks in the states to expand their loans. Further, Jackson’s 1836 Specie Circular required payment in gold or silver for the purchase of federal lands, increasing demand for gold and silver coins, thereby compounding the contractionary effects of the distribution of the surplus.
Glossary Term