The Panic of 1837 was a financial crisis that resulted a run on banks, widespread unemployment and insolvency, and a large-scale drop in public confidence in government.

The U.S. Government had established the Bank of the United States in 1791, giving it a 20-year charter. A board of 25 directors oversaw the Bank's operations, which were essentially to act as the nation's central bank, including collecting tax revenues and making payments to foreign lenders. One main duty of the bank was to regulate the practices of other banks, particularly those of the states. The Bank was the brainchild of Alexander Hamilton, the United States's first Secretary of the Treasury.

The Bank functioned as expected for the next two decades. When the charter was up for renewal, James Madison was President and his Democratic-Republican Party was distrustful of the central bank. Congress did not pass a bill for renewing the Bank's charter, and so the Bank charter expired in 1811. (The bill nearly passed. The House approved it, but the Senate vote was a tie, broken in the negative by Vice-President George Clinton, a Bank opponent.)

Without a central bank, the country ran into trouble procuring funding to finance the military effort during the War of 1812. Also during this time, state banks issued their own bank notes in growing numbers, increasing inflation and mistrust. Even though the Democratic-Republican Party was running the government, they decided to reinstate the Bank of the United States. An act of Congress established the Second Bank of the United States in 1816.

One Westerner who supported the Bank was Henry Clay of Kentucky, a member of the Whig Party. A cornerstone of the American System, a set of proposals for the federal government favored by Clay and his fellow Whigs, was a strong central bank. Clay was running for President in 1832 against the incumbent, Democrat Andrew Jackson (right), who distrusted the Bank. The charter of the Second Bank of the United States was due for renewal in 1836, as before. Clay, however, wanted the Bank to be a campaign issue, so he persuaded the Bank president, Nicholas Biddle, to make an early appeal for renewal of the charter. Congress approved the charter renewal in July 1832, but Jackson vetoed the bill. Congress did not have enough votes to override the veto, so the veto stood. All of this took place during the presidential campaign, and when Jackson won re-election, he took it as a sign that his position on the Bank was the correct one. He directed his Treasury Secretary, Roger Taney, to remove federal deposits from the Bank. Any federal funding earmarked for the Second Bank of the United States went instead to select state banks, which came to be known as "pet banks." Effectively neutered, the bank limped along until its charter expired in 1836.

To many people, it made little difference whether their bank was a federal one or a state one. The state banks that were suddenly infused with federal cash granted a large number of loans to farmers and industrialists alike. At the same time, these banks printed more and more money. One of the results was inflation. Another was the devaluing of the currency.

To combat these undesirable conditions, President Jackson in July 1836 issued an act called the Specie Circular, in which he decreed that the U.S. Government would accept as payment for federal land not paper currency but only gold or silver. Foreign investors, alarmed by the high inflation and low currency value, began to issue the same demands. Sales of federal land stagnated. One alarm begat another, and many bank customers marched to their banks to demand their money back. A significant number of banks had overextended themselves in the cash flow department, loaning out more money than they had in reserve and were overwhelmed by the sudden rush in customers seeking payouts. In 1837, about 800 banks went out of business. Many people never got their money back.

One prime intangible result of all of this economic uncertainty was a decline in confidence of the federal government to solve the country's economic problems. As more and more businesses failed and more and more banks proved unable to deliver money that people thought that they should be able to get, the panic grew.

It wasn't just banks that were closing their doors. Other businesses went bankrupt, putting many people out of work and, in many cases, slashing the wages of those who still had jobs. Some companies resorted to paying workers with something called a "shinplaster," a form of currency from a private bank that wasn't backed by any sort of guarantee. Estimates of unemployment at this time are that 10 percent of the workforce was out of a job. Some stores stopped accepting paper currency as payment on loans. Many people went hungry, and some raided warehouses to avoid starvation. Riots were not uncommon. Other people frequented soup kitchens, in some cases to an overwhelming degree.

The wealthy suffered as well, as banks ran out of gold and silver. The banks that were still in business had issued bonds to other banks, in order to prop up the failing institutions; many of these banks failed anyway. Overall, historians think that nearly 40,000 individual Americans went bankrupt, losing a total of $741 million.

In time, even states defaulted on the bonds they had issued. The depression wrecked the economy of several states, particularly the Cotton Belt in the South, in which plantations struggled to sell their product and to pay back loans that they had taken out on the assumption that revenues would rise because of a rise in price. The depression spread to Europe because France and Great Britain, in particular, were keen investors in American markets. The federal government for a brief period withdrew itself from global money markets.

Jackson's Specie Circular had started the economic decline, but it wasn't entirely evident during the presidential election campaign of 1836. Jackson had declined to run again, and the incumbent Vice-president Martin Van Buren, had taken up the Democratic Party mantle. Van Buren won the election, largely because of the popularity that Jackson and the Democrats still enjoyed. As the party in power during the Panic of 1837, the Democrats shouldered nearly all of the blame. Like Jackson and many others of his party, Van Buren was fundamentally opposed to the federal government's reaching too far into ordinary people's lives in any way. With no central federal bank to restore order, Van Buren and the Treasury Department employed various arms-length strategies to try to reverse the economic decline. None worked. Finally, in 1840, Van Buren consented to setting up an independent treasury that was unconnected to banks. It was too little, too late–for Van Buren, anyway. He was not re-elected. Instead, the new President was William Henry Harrison, of the Whig Party, which had also won a majority in Congress.

The new governing party repealed the law that had created the independent treasury, and the depression continued. Gold, meanwhile, was soaring in value, both real and figurative. It wasn't until 1843 that the economic climate of the U.S. was on an upward trend again. In the meantime, the Whigs had their eye on a new version of the Bank of the United States, to help finance their American System, an ambitious plan of expansion of infrastructure. Scuttling those plans was John Tyler, who as Vice-president had succeeded Harrison as President when the latter died after only a few weeks in office. Tyler vetoed the bill, arguing that it was unconstitutional, and Congress did not have the votes to override that veto. It was left to the next Democratic President, James K. Polk, to approve the Independent Treasury Act, which he did in 1846.

The U.S. economy didn't recover fully until 1850, that recovery aided by the Mexican-American War and the California Gold Rush.