4. THE AMERICAN REPUBLIC GETS UP AND RUNNING

AMERICAN ECONOMIC DYNAMICS AT THIS TIME

Jackson's decision in 1833 to withdraw all government deposits from the Bank of the United States – and move them to his "pet banks" located here and there around the country – undercut New England's world of industrial/financial capitalism deeply.  But this action found wide approval among Jackson's rural supporters, who generally hated the banking world (most farmers found themselves in debt to banks in order to finance their farming operations).  They were hoping that Jackson's stripping the BUS of its powers would make money cheaper (inflating the value of the dollar, making the repayment of their debts less costly to them).  The Whigs, however – representing the banking community of the Northeast – demanded tight discipline of the money supply and the value of the dollar.

The national economic crisis of 1837-1840.  An economic bubble of prosperity – built on the huge printing of paper money and the pricing of Western land at nearly give-away rates – suddenly burst in 1836 when currency problems back in London forced banks there to have to raise interest rates dramatically – in turn forcing American banks closely connected with the London banks to have to do the same.  At the same time Jackson, oddly enough, reversed course on Western land sales – and demanded that payment be made in gold or silver coin rather than paper money – ruining land speculators, who had bought huge amounts of land rights with paper money, now finding potential purchasers of those lands backing away.  Also, people began to make a run on banks, demanding that their deposits be refunded in hard currency (gold or silver) – something banks did not themselves possess in their vaults.  Suddenly the American economy seemed to crash.

Jackson's Vice President Van Buren, now newly-elected U.S. President, did not cause the crash – but was the one everyone looked to in order to solve the crisis.  But the crisis was one of fear, not policy.  Paper money simply was not trusted and gold and silver were not easily expanded items.  All anyone could do was ride out the panic – and hope that somehow the crisis would resolve itself.  But that crisis was still on several years later when in 1840 Van Buren stood for reelection.  Slowly a bit of confidence had been returning to the American economy – and businesses and banks were getting back on their feet (somewhat).  But the process was too slow for Van Buren not to take the hit for it all.

Consequently the Whig candidate and former war hero (Indian fighter) William Henry Harrison was elected president – although he served in the presidential office only briefly, having caught a bad cold speaking long at his inauguration ceremony and dying a month later.  Thus his Vice President John Tyler stepped into the presidency.  Now the pro-BUS Whigs commanded the situation – and slowly put the American finances and thus the economy back on a stronger footing.

Lessons about careless handling of the nation's wealth by a government seeking to gain popularity by making wealth appear to come very easy (thus inflating a huge speculative bubble) should have been learned from this experience.  But this would not be the last national financial crisis to hit the nation because of unwise government financial policies (the crisis of 2008 being a recent example.)