that such contraction was necessary because of the loss of the government deposits. In the midst of a prosperous year, a short, sharp panic followed, manufactured heartlessly by the money power. The harvest was abundant; but the lack of the usual credit was felt cruelly in the South and West where large amounts of money were always needed at that time of year to "move" cotton and grain to Eastern markets. Interest rose from six and eight per cent to fifteen and even to twenty-four per cent; and farms and crops went for a song under the auctioneer's hammer. Delegations of business men rushed to Washington to urge Jackson to surrender.

Jackson, however, could not be moved; and soon both Congress and public opinion deserted the Bank. In 1834 Biddle gave up the struggle. The Bank applied to Pennsylvania for a charter as a State Bank, and meantime returned to its old policy in loans and circulation. Business became normal

at once.

587. This grisly matter might well have warned the nation that its credit was overinflated. The nation did not see the warning and, three years after this artificial panic, natural causes brought on a real panic like that of 1819.

Since the War of 1812, State banks had doubled in numbers and in capital and bulk of loans without enlarging the total of gold and silver on hand. Many of them, especially in the South and West, were "wild-cat" banks, weak and recklessly managed. No State had yet learned how to guard its citizens against such abuses.

Other lines of business were equally reckless. The people, especially in the South and West, bought their daily supplies "on credit" from the store; the storekeepers had bought the goods on long time from Eastern wholesalers; and these in turn had bought on credit from the factory or the foreign merchant. All this was perhaps necessary; but it encouraged extravagance. Less excusable was the universal rage to invest in land and to speculate in stocks-on credit, loaned largely by the unreliable State banks. And after 1834 the "pet"

§ 589]

INFLATION AND PANIC

495

banks, in which the government deposited funds, felt able to loan more freely than ever before.

The orgy of building roads and canals, too, was in full swing (§ 497). The West had failed to get much in the way of internal improvements from the Federal government; but, confident in its future, it was pushing canals and even railroads into the wilderness. Often this was done wastefully; and in any case such money was "sunk" where it could pay no interest for many years. Illinois, with half a million people and a quarter of a million of dollars for its yearly revenue, bonded itself for roads and canals to the amount of $14,000,000.1 In 1820 State debts all together were under $13,000,000: in 1840 they were $200,000,000, mainly owed to European capitalists who drew $12,000,000 interest yearly from America.

588. Another government measure of Jackson's administration scattered more widely the infection of overinvestment. In 1835 the national debt was paid, and a surplus was piling up in the Treasury at the rate of $35,000,000 a year. Taxes could not be reduced conveniently: half this income came from the tariff, and the government was pledged not to disturb that until 1842 at least (§ 584); the other half came from the public lands; and the West would not listen to any suggestion for shutting down on those sales. Accordingly, the government decided to divide this surplus among the States. The money then found its way, as State deposits, into State banks and into the same round of speculation.

To avoid constitutional scruples, this gift to the States was called a "loan without interest." Twenty-eight million dollars were distributed. Then the "panic" seized the country and before the end of 1837 the Treasury was trying to borrow money for necessary expenses. No call was ever made upon the States for a return of the " loan."

66

589. In the final year of his administration, Jackson became alarmed at the rapid sale of public lands, paid for in paper only; and his famous "Specie Circular" ordered United

1 Morse's Lincoln (I, 53 ff.) gives a quaint account of this fever.

States land offices thereafter to accept only gold and silver in payment for public lands (July, 1836). This was notice to the country that the vast bulk of its currency was dubious in value.

590. Martin Van Buren, of New York, Jackson's faithful counselor, was elected to the presidency that fall, in time to reap the whirlwind. In May, 1837, every bank in the country

suspended specie payment, and great numbers closed their doors. Gold and silver went into hiding, and bank paper depreciated in fantastic and varying degrees in different parts of the country, but everywhere ruinously. Merchants failed; factories closed down; unemployed thousands faced starvation. The first Labor movement was crushed out (§ 549). Normal conditions were not restored for five years.

§ 592]

THE PUBLIC DOMAIN

497

591. Van Buren saw his chance for a successful administration ruined by the disaster; but he met the situation with calm good sense. His message to Congress pointed out the real causes of the panic and the slow road back to prosperity. Meantime, for the government funds, he recommended an Independent Treasury (independent of all banks). In 1840 this plan was adopted, though for some years the Whigs fought desperately to revive their pet scheme of a National Bank. The government built itself great vaults at Washington and other leading cities; and until recently the National funds were handled solely in these, under the direction of the Treasury Department.

592. The two other great measures of Van Buren's four years were the ten-hour order (§ 551) and a preemption law.

By 1830, the sale of public lands was bringing in as much money as the tariff. The revenue was not then needed; and the well-to-do classes in the Eastern States felt that the lands ought to be sold more slowly, so as, eventually, to produce more revenue when it should be more needed (§ 580). The new States stood for a different policy. They looked upon the public lands not as a source of revenue, but as a source of homes and as a means of developing the country, and were ready even to give them away, in order to encourage rapid settlement. The workingmen of the North Atlantic section (§ 549) threw their weight overwhelmingly into the same scale.

As early as 1828, before the West itself was fully aroused, the Mechanics' Free Press (§ 545) circulated a memorial for signature among its constituency, urging Congress to place "all the Public Lands, without the delay of sales, within reach of the people at large, by right of a title by occupancy only," since "the present state of affairs must lead to the wealth of a few," and since "all men . . . have naturally a birthright in the soil." And says Dr. Commons, "The organized workingmen . . . discovered that the reason why their wages did not rise and why their strikes were ineffective was because escape from the crowded cities of the East was shut off by land speculation. In their conventions and papers, therefore, they demanded that the public lands should no

more be treated as a source of revenue to relieve taxpayers, but as an instrument of social reform to raise the wages of labor.

"And when we, in later years, refer to our wide domain and our great natural resources as reasons for high wages in this country, it is well to remember that access to these resources was secured only by agitation and by act of legislation. Not merely as a gift of nature, but mainly as a demand of democracy, have the nation's resources contributed to the elevation of labor."-Introduction to Vol. V of Documentary History of American Industrial Society.

For a while in the thirties, the West urged that each State should be given all the public domain within its borders. To steal the Democratic thunder, and to head off this plan, which would have destroyed all uniformity in dealing with public lands, and wiped out a powerful bond of National union, Clay advocated that all proceeds of public-land sales should be distributed among the States in proportion to their Congressional representation. His first bills failed, but, with the return of prosperity in 1841, he carried a law with three features: (1) it divided among the States (for a limited time) 90 per cent of the proceeds of the land sales; (2) it inaugurated the policy, since maintained, of giving to each new State1 a liberal amount of lands to form a State fund for internal improvements; (3) it contained the famous provision (championed by Benton for twenty years) which gave to the whole law its name The Preëmption Act.

Settlers pushed on ahead of land-office sales, as squatters. Later came a public sale, wherein the land office put up each "forty" at auction. Speculators with Eastern money attended, eager to get choice pieces. The settler was sometimes outbid (losing the results of his labor upon the land and of his foresight in selecting it), or was compelled to pay much more than the minimum price of $1.25 an acre, to which the frontier community felt that he was entitled. The preemption law provided simple means by which the settler might "file upon a piece of

1 Similar grants were provided also for those of the older States which had not already had a liberal control over the lands within their borders. This grant was in addition to the customary grant of school lands (§ 314, close), and followed out the principle of the original grant to Ohio for internal improvements (§ 455).