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Odd Wisconsin Archive

Bank Failures of 1837

The past week has brought the most alarming economic news of our generation, as one pillar of the banking industry after another crumbled. Something similar happened 170 years ago when nearly half the banks in the country collapsed, business ground to a halt, and unemployment reached record levels. Here's what happened, and how it affected Wisconsin, during the so-called Panic of 1837.

In the early 1830s, the nation's economy grew so fast that the government paid off the national debt (imagine that). As new factories, canals, and railroads blossomed and land was sold "dirt cheap" by the government, settlers flowed westward to found cities such as Milwaukee and Madison. To fuel this expansion, investors formed their own banks, insurance companies, and lending institutions, each of which printed its own bank notes. The federal government was committed to keeping its hands out of private business, so this rapid expansion fueled by paper currency naturally led to inflation. Currency became so unstable and frontier banks so unreliable that in 1836 the federal government decreed that it would only take silver or gold as payment for land.

Suddenly, there was not enough hard currency to go around. Banks without gold to back their paper couldn't pay their customers, entrepreneurs couldn't find investors, employers couldn't meet payrolls... you get the picture. According to one who lived through it, Wisconsin was "flooded with a paper currency called 'shinplasters,' 'wild cats' and 'yellow dogs' which were based on cheek and had no capital to back them; they were liable at any moment to be worthless. You might go to sleep with $1,000 in your possession and wake up in the morning and find your bank bills worthless." The whole house of cards came crashing down and the land of opportunity vanished almost overnight.

When Alexander Pratt came to Milwaukee in 1836 he found business booming. But "the spring of 1837 disappointed all our anticipations," he laterrecalled. "A general stagnation in business prevailed in all directions; immigration had almost entirely fallen off; our currency, which was mostly of the Michigan 'wild cat' stamp, was no longer a legal tender; there was no sale for real estate; the second payments were becoming due on purchases of real estate, and all who supposed themselves rich in lands were not only destitute of money but the means to raise it. Some, who were able to hold on, kept their property until they could get a handsome advance; while the majority were compelled to sell for what they could get, and bankruptcy was the inevitable result."

Edward Holton came to Milwaukee a year later, in the fall of 1838: "It was then as now a period of high water in the lakes," he wrote 20 years later, "and much of what are now the Third, Fourth, and Fifth Wards were submerged; no sidewalks, no streets. Speculation had raged here through the years of '36 and '37, and now everything was prostrated; and surely a more desolate, down-to-the-heel, slip-shod looking place could scarcely be found than was Milwaukee in October 1838. Its population was from 1,200 to 1,500. I turned away from the town then with the feeling that, if it was a fair sample of the glorious and beautiful west, I, as one humble seeker of his fortune, had seen enough."

Although the depression of 1837 lasted for about five years, Wisconsin began to emerge from it a little sooner than much of the nation. Commercial enterprises and rural land values began to rise by 1839-1840.

One effect of the Panic of 1837 was that in 1846, when Wisconsin made its first attempt at drafting a constitution, privately owned banks and paper money were outlawed. Theodore Rodolf, a Swiss immigrant who came to the state in 1834, recalled that in the 1846 draft, "the people of western Wisconsin insisted on inserting into the constitution an article not only prohibiting state banks from issuing paper money but prohibiting and excluding the circulation of any paper money whatever in the state, recognizing only gold and silver as legal tender. The people on the lakeshore and in all eastern counties, being mostly trading communities, were largely in favor of a paper currency. The result was the rejection of the state constitution and the calling of another convention which recognized banks and paper money. That constitution was adopted and in 1848 Wisconsin became a sovereign state."

:: Posted in Curiosities on September 27, 2008

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