Panic, Prosperity, and Progress: Five Centuries of History and the Markets

CHAPTER 5

The Panic of 1837

In the early history of the United States, there were two competing sets of thought with respect to banking. On one hand were those of Thomas Jefferson’s mindset—the agrarians—who cherished individual production and self-reliance, and viewed banks and the legal entity known as the “corporation” with a tremendous amount of skepticism; on the other hand were the industrialists, who saw banks as a vital backbone of the economy and perceived the world as moving from a farm-based economy to a factory-based one.

One topic that was particularly divisive for these disparate groups was the notion of a central government bank. Europe’s nations each had a government-sponsored bank that acted as the financial arm of the national entity; these banks would typically manage taxes, tariffs, the money supply, and other universal financial matters of the country relevant to the public interest. The government of the early United States decided to have one as well—named, not surprisingly, the Bank of the United States. The debate over that bank and the actions required to dismantle it were in large part responsible for one of the worst financial calamities the young nation had ever faced.

■ The Nation’s Central Bank

The first Bank of the United States was established early in the nation’s history, but the charter for the bank was, as with most banks, not permanent. It was chartered for 20 years, and in 1811, the end of the charter was drawing near. The House of Representatives ...