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By Root 7269 0

English decided to take away. The Bank of England raised its discount rate and reined in British bankers it thought too accommodating of Americans. The transatlantic flow of capital was suddenly and severely restricted. Eurocreditors demanded U.S. merchants remit their balances due, just as cutbacks in cotton purchases were driving down the price of America’s staple. This forced U.S. businessmen to pay in gold. Specie sailed back to Europe. New York City, which had facilitated the boom, now helped terminate it. Its hardpressed banks and merchants called in their debts. When New Orleans cotton factors and country retailers couldn’t pay, Pearl Street failed, Wall Street suspended, and a vicious contraction radiated out along the same trade routes upon which credit and capital had earlier traveled.

Proposed remedies varied dramatically with ideology and interest. Whigs called for reversing Jackson’s policies and bringing back a national bank. President Van Buren and the Loco Foco Democrats wanted to extend Jackson’s policies by severing all connections between the banking system and the government.

Debtors, for their part, wanted to suspend or scale back what they owed. They favored inflating the currency so they could repay their debts with dollars cheaper than those they had borrowed. Above all, farmers, producers, and thousands of businessmen across the country—including many Pearl Street merchants, leagued in the New York Board of Trade—wanted to postpone resumption of specie payments, which they feared would force them into bankruptcy.

Creditors wanted to put the country through the wringer of deflation and depression. They favored restoring the gold standard, which would force debtors to repay them with dollars more valuable than those they had borrowed. A phalanx of New York City financiers, led by the venerable Albert Gallatin and the firm of Prime, Ward, and King, called for resuming specie payments as soon as the banks were strong enough to withstand runs. Restoring paper money’s interconvertibility with gold would regain the good graces of overseas bankers—something deemed crucial for a country dependent on imported capital—while also deflating the economy.

Gallatin and the New York bankers succeeded, with some crucial governmental assists from the Erie Canal Fund (which lent beleaguered banks over two million dollars) and the Bank of England (which chipped in one million pounds sterling). Their vaults now stuffed with metal, New York banks resumed specie payments in May 1838. The country, including Philadelphia, reluctantly followed Manhattan’s lead. Wall Street, once a lionized lender, now became a hated creditor. The hard-nosed policies of New York’s banks were complemented by the tough tactics of its land speculators. Arthur Bronson, acting for himself and for eastern and English interests, lobbied vigorously and successfully against all western and southern moratoria and debt reduction schemes.

For a short time, it seemed that resumption had indeed resurrected the economy. Credit and capital flowed again from east to west. Businesses revived. States and corporations sold their bonds on the London market and launched new projects. The price of cotton rose. But when a bad harvest in 1839 forced England to export gold in order to import wheat, the Bank of England clamped down again, and the story repeated itself.

The depression deepened through the early 1840s. Imports fell. Real estate values sagged. Railroad construction fell by two-thirds between 1838 and 1843; canal construction plummeted 90 percent. Deflation replaced inflation: prices declined 46 percent between February 1839 and February 1843. Recompense for craftsmen and unskilled workers—for those lucky enough to find work at all—dropped about onethird between 1836 and 1842, often falling faster than prices and rents, thus driving real wages down.

FROM BOOM TO BUST

The panic wrought startling reversals of condition at all levels of city society, noted the Common Council, making many “who but two years since considered themselves rich, poor.” General