Panic of 1837: New York City banks fail, and unemployment reaches record levels

The Panic of 1837 was a financial crisis in the United States that touched off a major recession that lasted until the mid-1840s. Profits, prices and wages went down while unemployment went up. Pessimism abounded during the time. The panic had both domestic and foreign origins. Speculative lending practices in western states, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Great Britain were all to blame.

On May 10, 1837, banks in New York City suspended specie payments, meaning that they would no longer redeem commercial paper in specie at full face value.

Despite a brief recovery in 1838, therecession persisted for approximately seven years. Banks collapsed, businesses failed, prices declined, and thousands of workers lost their jobs. Unemployment may have been as high as 25% in some locales.

The years 1837 to 1844 were, generally speaking, years of deflation in wages and prices.