180 Years Ago Today
Written by: Jessica M. Lepler
On May 10, 1837, 180 years ago today, the banks of New York City did something extraordinary: they suspended specie payments. This phrase does not ring many bells for twenty-first-century ears, but in the nineteenth century, the suspension of specie payments was the equivalent of a financial nuclear option. It meant that the banks in America’s largest and most powerful city stopped trading their paper money for gold and silver coins. In other words, it stopped the circulation of America’s legal money. America’s financial system ground to a halt.
This drastic measure was the product of two months of transatlantic panic as people, their local communities, and their nations attempted to deal with massive commercial failures. The suspension of specie payments was a dramatic response to a series of interrelated financial crises in the U.S. and Britain that left panicked people attempting to escape failure. Nearly everyone tried to get his or her debtors to pay up. Many sued. Some absconded. And a few took their own lives. In early May, the suspicious death of a New York banker prompted lots of New Yorkers to demand that the banks exchange their banknotes for coin. After a few bank runs, the banks pursued a last-ditch defensive effort. Despite institutional and partisan divides, the bankers who ran all of New York City’s banks decided to suspend specie payments. The bankers hoped that this action would prevent the complete failure of the nation’s banks. Within weeks, banks in every American city and town followed New York’s example. This meant that no one – no man, woman, or child – and nothing – no company, institution, or government – could access the banks’ gold and silver supplies.
As you might imagine, the suspension of specie payments was hugely consequential. This event influenced the lives of every American, from enslaved laborers who had been mortgaged to fund their own sales, to the nation’s wealthiest industrialists who had invested in the cotton textile trade.
Prior to my research, over a century’s worth of economic and historical accounts described the suspension of specie payments on May 10 as the beginning of an event they called “The Panic of 1837.” My book, The Many Panics of 1837: People, Politics, and the Creation of a Transatlantic Financial Crisis, disproves this chronological claim by tracing the experience of panic in 1837 through the primary sources held in more than two dozen archives on two continents. The Many Panics also demonstrates exactly why historians and economists got the chronology wrong. The people of 1837 rewrote the story of panic to be all about national politics and, by doing so, wrote the many experiences of panic out of the Panic of 1837.
The suspension of specie payments on May 10 ended rather than began the period of panic in 1837. The period when people actually claimed to be panicked began at least two months before the banks’ suspension of specie payments. After the suspension of specie payments, people stopped writing about their panic and started dealing with their failures. People who had faced crippling financial and economic uncertainty could now take the time to reconcile their accounts and plan for the future.
The older claim that May 10 began rather than ended the panic was in fact the product of a second major effect of the suspension of specie payments. The banks’ decision to no longer trade their paper for coins locked up the U.S. federal government’s funds. This means that the American nation itself became illiquid. This was ironic. Only a year earlier, for the first and only time in its history, the U.S. federal government paid off the national debt; it literally had money in the banks. With the national suspension of specie payments, Washington lost access to its money. It finally had a surplus, and the government literally could not pay its bills. President Martin Van Buren, who had taken a hands-off approach to the previous months of panic, was forced to act. The two national parties of the time interpreted the suspension of specie payments and Van Buren’s response in highly partisan political terms. Ultimately, this politicization of the financial crisis became the history that Americans remembered. Personal panics, local crises, and Britain’s pivotal involvement in the financial crisis faded from memory. The two months of panic in 1837 disappeared from what became known as a single political event called the Panic of 1837. The Panic of 1837 hid the stories of the many panics of 1837.