The Panic of 1837

1837 CE — North America, United States

Today: The United States

Cheap credit, a boom in cotton, and frenzied speculation in western land — much of it bought with banknotes from banks that printed their own — ended when the government demanded payment for public land in gold or silver only. The paper was suddenly worth what it was actually backed by. Banks suspended payment, cotton prices collapsed, and the United States entered a depression lasting six years, with unemployment in the cities and states defaulting on their debts. It was the first time the young republic learned that a land boom financed by paper is a claim on a future that has to arrive.

Worth knowing: Nine American states defaulted on their debts, and British investors who had lent to them were furious enough that when the U.S. tried to borrow abroad in 1842, it could not find takers — one London house replied that the credit of the United States was not worth a farthing.

Pattern: Mania & panic — A speculative belief detaches asset prices from fundamentals; the belief breaks and prices collapse.

Entry 186 of 240 in Precedent, a walk through the whole human story in order.