In the nineteenth and early twentieth centuries Americans used the word panic to describe an economic depression. Because they associated depressions with banking crises, they evocatively labeled severe financial downturns panics and captured the popular response to currency restriction and bank closings. The Panic of 1837 signaled the start of the country’s worst depression in the nineteenth century, which wreaked havoc in Mississippi for almost ten years.
During the scant two decades that separated Mississippi’s entrance into the Union and the panic, the state grew at a remarkable pace. The development of the cotton gin and, more important, the hybridization of several varieties of cottonseed prompted East Coast residents to migrate to the southwestern frontier. Many veterans of the War of 1812 received land grants, which they exercised on the vast public domain of Mississippi. Statehood in 1817 encouraged more migrants to turn southwest, since the Union’s familiar protections and stability were now available.
But substantial growth in the state awaited the Removal of Native Americans from the vast central portion of the state. When Choctaw Removal began in 1830, white settlers traveling with their slaves flooded into the middle third of Mississippi, and when the US government removed the Chickasaw from their ancestral home later in the decade, white migration shifted to the upper third of the state. This era has been labeled the Flush Times in antebellum Mississippi.
Between 1830 and 1835 the state grew exponentially, and thirty new counties were created from Indian cession lands. As potential farmers flowed into the public domain, they brought with them a desire for land and the need for capital. But Mississippi had few banks, and for much of the first twenty years of statehood, only the Bank of the State of Mississippi stood ready to lend money. To meet the credit crisis, Mississippi chartered twenty-seven banks between 1832 and 1837. Waterworks, railroads, and insurance companies received legislative charters to function as banks. They could accept deposits and issue currency. To meet the demand for credit, these banks freely printed currency notes, frequently without the gold and silver (specie) needed to back the paper money.
Inflationary currency policy caused notes issued by most Mississippi banks to be severely discounted when not exchanged at the issuing bank. Essentially then, banks in Mississippi produced a currency that met local demand but lacked credibility outside the immediate community. By itself, the currency policy of state-chartered banks was not conducive to long-term prosperity, but the international flow of specie and federal policy hastened the demise of the Flush Times.
In the mid-1830s the international flow of gold and silver began to shift away from the United States. Great Britain had traditionally been a primary customer for American raw materials (including cotton) and supplied the United States with specie in exchange. However, in the 1830s, the British government and entrepreneurs looked to Southeast Asia for new products to buy—tea and opium. The diminution in the US specie supply rapidly became evident.
In 1836 Pres. Andrew Jackson sought to shore up the federal government’s supply of specie by issuing his Specie Circular Act of 1836, which required that all debts owed to the United States be paid in gold or silver. The regulation placed a premium on gold and silver for all manner of financial transactions. Mississippians turned to their local banks to exchange currency for specie but discovered that they had none to back the notes, and banks begin closing almost as rapidly as they opened. Currency, once readily available for conducting everyday transactions, suddenly became scarce.
Owners of businesses and farmers found themselves hopelessly in debt and unable to buy or sell goods. Official statistics about the depth of the depression are unavailable, but its effects remained evident as late as 1845. Jehu Amaziah Orr, who traveled from Jackson into northeastern Mississippi, noted countless abandoned plantations, which he described as “bits of wreckage and flotsam” that marked “the unseen graves of those who have perished there.” Courts routinely seized property, and to escape bankruptcy proceedings debtors packed their households and fled to Texas in the middle of the night, a practice so common that another resident referred to Texas as “the stronghold of evil-doers.”
The Panic of 1837 devastated Mississippi’s economy. Perhaps more important, political debate over the causes of and cure for the panic led to the development of a competitive two-party political system dominated by discussion of economic issues.
- Bradley G. Bond, Political Culture in the Nineteenth-Century South: Mississippi, 1830–1900 (1995)
- J. A. Orr, Mississippi Historical Society Publications 9 (1906)
- Larry Schweikart, Banking in the American South from the Age of Jackson to Reconstruction (1987)
- Peter Temin, The Jacksonian Economy (1969)