Roy M. Robbins, Our Landed Heritage: The Public Domain, 1776-1936 (1942).

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CHAPTER IV
SPECULATION AND PANIC

While Clay and the National Republicans were still smarting under the distribution bill veto, Jackson asked for the removal of the government deposits from the National Bank. These deposits were redistributed among so-called "pet-banks," that is, state banks selected by the government as depositories. Hence many small banks in the wilderness with capital of only two or three hundred dollars were suddenly placed in possession of three times that amount of workable funds. The removal of the deposits from the National Bank thus not only weakened the credit structure of the country, but proved to be a highly inflationary measure, dangerous and ominous. Wildcat banking soon reached proportions unparalleled in the history of the Republic. Speculation every day became more extravagant and more universal.

The first effects of this state of things, like the proverbial first stages on the road to ruin, were delightful. Property doubled in value, industry was stimulated by the increased price of its products, capital was abundant and profitably employed, labor commanded unprecedented wages -- indeed, the magic lamp of Aladdin could not have produced more admirable results. In 1833, sales accounted for 3,856,228 acres; but in 1835 over twelve million acres went for sixteen million dollars; in 1836, twenty million acres sold for the all-time high of fifty-four million dollars. The unprecedented interest in internal improvements following the successful venture of the Erie Canal, the competition among eastern cities to tap the supply centers of the West, mounting commodity prices, easy credit, all gave an impetus to western development such as had never before been witnessed.

In this new era of prosperity, land and real estate more than any other commodities became the objects of rampant speculation.¹ Within six years after 1830 the value of real estate throughout the country rose 150 [60] per cent.² From a Wisconsin newspaper came the estimate that in the newer sections of the country, real estate investment for the ten years between 1825 and 1835, paid a 20 to 30 per cent return per annum.³ In 1836 Manhattan Island was surveyed, divided into lots, sold and resold.⁴ The speculators in Maine nearly beggared the state. Men left their warehouses, counting-rooms and stores and rushed off to buy townships, village lots, or mill privileges. "So crowded were the mushroom cities," remarked one commentator, "that barns, sheds, and the privilege to lean against the gate posts were in requisition for lodging places."⁵

What was phenomenal in the East was a mere introduction to what was taking place in the West. Twenty-eight million acres of rich lands dumped onto the market by the government in 1834-35 sharply contrasted with the average of two or three millions offered annually in former years. The whole frontier region was regarded as a lottery office, to which individuals from all over the world might resort to accumulate wealth, under the favors of the capricious and blind goddess, Chance. Good lands in the East were high in price. An item in a New England newspaper to the effect that "twenty farms have been sold in the town of Worthington within a few months, nearly all the owners of which are bound for the West," indicates the extent of the exodus.⁶ The danger of depopulation in parts of the East was ameliorated somewhat by the increase in foreign immigration. Political troubles in Germany were driving hundreds of Germans to seek land in the American West.⁷ But in spite of foreign immigration, labor was scarce; agriculture everywhere, and indeed all substantial enterprise, was being neglected. Log houses swarmed with eager buyers and settlers when there was scarcely food enough in the country to maintain its permanent population.⁸

In the Southwest the abundance of bank credits which the operations of wildcat banking produced, together with the stupendous rise in the [61] price of cotton, rendered planting profitable beyond all former experience. Young planters from the Atlantic States, migrating to the banks of the Mississippi with slaves from their paternal estates, were supported in their enterprise by this state banking system feeding on money from the East and from London. Almost thirty million dollars was invested by eastern capitalists for improvements in the state of Mississippi alone. These new planters entered lands at astoundingly high prices, and immediately became stockholders in the property banks -- that is to say, they mortgaged their Negroes and lands to the banks for money to carry on their planting, the banks receiving the cotton and controlling the bills. Sums were loaned on interest as high as 10 per cent.⁹

The large sales of lands, from 1834 to 1837, were all under the whip and spur of this type of inflation. The southern part of the state of Mississippi came into the market first, followed shortly afterward by the sale of that fine tract of land in the northern part of the state known as the Chickasaw Cession. These sales were attended by gambling traders from all parts of the United States, and bona fide settlers had little chance to secure land. Consequently much of the rich loam fell into the hands of a few wealthy proprietors. In the southwestern states during the three years before 1838, over thirty-eight million dollars was invested mostly in the production of cotton. Over twelve million acres of the most prolific land came into culture. The great increase in production brought falling cotton prices, and ultimately led to the ruin of both the planters and the numerous land banks.¹⁰

The admission of Michigan and Arkansas into the Union in 1836 by overwhelming congressional majorities evidenced the feeling of cordiality and kindly interest in the unexampled growth and prosperity of the West.¹¹ In the northwestern states the sales of land, stimulated primarily by the Erie Canal, were just as stupendous as those in the Southwest. Choice locations along state canals in Ohio sold at a premium,¹² but Michigan seemed to be the converging point of the new migration. This state, which had escaped the ravages of the land mania after the Panic of 1819, was now in the path of a speculative hurricane. Of the twenty-five million dollars paid into the federal treasury in 1836, five [62] million were paid for lands in Michigan. This new state, declares one authority, recklessly "created a brood of banks, exempted by act of incorporation from redeeming their notes in specie wherever they should be organized -- an unprecedented piece of quackery. The state authorized a loan of five million dollars and her bonds were sold by her governor, acting as commissioner, in so unguarded and heedless a manner, that a large portion of their amount was never realized."¹³ Although the population of Michigan in 1831 was but 31,639, there were twenty banks within her bounds, and by 1837 there were forty.¹⁴ Enormous purchases of land were frequently blocked in together, and settlers noticeably shunned these areas. Steamboat companies practiced such gross deceptions upon immigrants and travellers that the reputation of the state suffered for years to come.

Speculators in the Wabash Valley of Indiana were pointing out the unusual advantages of the canal route from Lake Erie to the Ohio.¹⁵ In Illinois speculation was rampant. Even in the Territory of Wisconsin, whose population numbered scarcely five thousand souls, the price that land brought at the sales was beyond all reasonable expectation. At Manitowoc prices rose from $10 to $250 per acre within a week.¹⁶ At the Green-Bay land office eight million acres of land out of the thirteen million sold in 1835, lands rich in timber and minerals, were said to have gone to speculators.¹⁷ In Milwaukee, "speculators went to bed at night hugging themselves with delight over the prospect that the succeeding morning would double their wealth."¹⁸ And from Missouri came the report that "many people after three weeks' absence," had "returned from the far West, having purchased everything up to the Rocky Mountains," and were "now so rich" that they talked of "casting every man into the poor house" who was not "worth more than $10,000."¹⁹

Coincident with this speculation in potential farming lands developed the rage for townsites. There was no part of the public domain [63] that did not succumb to the fever for setting up towns on paper. Near New Orleans, the townsite of Bath which nine months previous had cost but $35,000 now brought $600,000. The townsite of Uncle Sam, sixty miles from New Orleans sold under the hammer for $500,000! And Harlen, Louisiana, which had cost $40,000, went for $200,000!²⁰ If these sales were sensational, then perhaps no words can describe the mad scramble for choice locations which took place in the Northwest. There was no fork, or falls, or bend in any river; no nook or bay on Lake Erie or Lake Michigan; no point along any imagined canal or railroad, in fact, not even a dismal swamp or a dense forest, but could be classed as a choice location for a flourishing metropolis -- at least on paper! The wildest sort of speculative mania centered around the town-sites of Toledo and Chicago.²¹ In 1833 Chicago was a mere frontier post; by 1836 it was the fastest growing "metropolis" of all Christendom. Speculators were running steamboat excursions to this town and on to Milwaukee. It seemed as though almost all of northeastern Illinois was laid out in towns -- on paper. One site which was actually destined to become a great city, could boast but one humble dwelling, yet the lots on that site were commanding $1,000 to $2,500 each.²² A Chicago gentleman, observing the increasing activity for town plotting and building, seriously advised with some of his friends on the subject of reserving one or two sections of land in every township for farming purposes!²³

Cairo, Illinois, furnishes perhaps one of the best examples of the madness which accompanied these townsite speculations. The junction of the Ohio and Mississippi rivers, apparently one of the most strategic sites in America, was overnight laid out as a great city. Streets were graded, house and store lots were laid out for miles up the banks of both rivers. Elegant colored maps were exhibited in eastern cities, most minutely particular in design. "There was to be a bank here, a customhouse there, a church in another place, and fine brick and stone dwellings in every direction. A hundred steamers were lying at the wharves, painted like life, and merchandise was piled about in perfect looseness and profusion. Drays were industriously engaged in removing the [64] merchandise back into the populated streets. Men, women, and children were thronging the squares and sidewalks!" Indeed, from the pictured description, one would suppose, according to this graphic description by a contemporary authority, "that both Cincinnati and New Orleans were to be removed and combined to make Cairo." But after all the speculations of 1836 the city of Cairo remained to be built. Extensive operations were started, it is true, but the first spring flood carried everything downstream, leaving only a dilapidated wharf boat, a long wooden portico with a shanty behind it, called the United States Hatch, a flock of geese, a lean pig, and a jackass.²⁴

As the wave of speculation in western lands reached its peak, glaring abuses and even scandalous frauds were brought to light. Speculators dominated the legislatures of Michigan and Wisconsin.²⁵ Even some officials of the local land offices were involved in questionable activities.²⁶ In 1834, discovery of great frauds in Alabama and Mississippi led the Senate to pass five resolutions providing for investigation.²⁷ The fraudulent practices of speculators at auctions were also investigated.²⁸ It is little wonder that in such circumstances the more substantial element of the pioneer community spoke of the General Land Office as a "den of thieves and robbers, a curse to the nation, and the destroyer of morals."²⁹

Abuses were discovered in the operation of the Preemption Act of 1830 and its consequent renewals. The Renewal Act of 1832, it will be recalled, provided that in the case of two settlers on the same quarter section of land, one settler was to be given a preemption-float which would allow him to enter a like quantity from any surveyed but unsold land. This provision offered almost unlimited opportunity to select choice lands.³⁰ One claimant making use of this provision attempted to gain tide to about half the town of Milwaukee.³¹ Land Commissioner E. A. Brown, in 1836, reported that he knew of "armies of slaves or [65] hirelings" employed by speculators to reap by fraudulent means numerous advantages from the Act of 1830.³² As for preemption-floats, he said that there were not thirty honest ones in the whole district of Louisiana.³³ The free Negroes, Spaniards, and Indians who inhabited these regions were nearly all in the employ of the speculators. Affidavits printed in large quantities were distributed to these persons who, with the paid cooperation of an ignorant or corrupt justice of the peace, secured preemption-floats.³⁴

The provision in the Act of 1830 and in subsequent renewal acts which required proof of cultivation was also considerably abused. The hearings disclosed that such pretenses as the cutting and burning of a small patch of cane, the placing of rails around a spot scarcely as large as a small garden, the planting of a few culinary vegetables, and even the scattering of an undefined quantity of grass-seed had passed as cultivation.³⁵

With all the abuse of the land laws during the speculative craze which preceded the Panic of 1837, a major part of the difficulty apparently centered around the auction, an institution which favored the speculator to the injury of the actual settler. Referring to the rich cotton lands in Alabama and Mississippi, Clement C. Clay of Alabama observed that "in sales which embraced three million acres of such cotton lands, the price realized was only $1.27, out of which was to be taken all the expenses of the sale."³⁶ It was originally intended that competition at the auction should be free and untrammelled in order to guarantee the highest price, but unfortunately collusion among speculators defrauded the government out of much of its expected profit. In fact, the average price for all lands sold in 1836, the year of the most stupendous sales in public-land history, was only $1.25, the minimum price established by law. The legislature of Alabama had petitioned Congress in 1832 praying for the abandonment of the auction, on the ground that it was "not... beneficial to the government, and in practice" [66] it was found "to operate injuriously and oppressively upon the purchasers.""³⁷

A contemporary description gives some idea of the operation of a land sale: "The hour approaches: the poor squatter runs about the town; he has been laboring all the year that he may buy the land on which his house is situated; perhaps for want of a dollar or two, it will be taken from him by greedy speculators. Anxiety and trouble are depicted upon his honest and wild countenance. A jobber accosts him, pities him, and offers to withdraw his pretensions for the sum of three dollars; the poor simpleton gives them to him, not doubting the jobber. . . . This is what is called hush money. . . . And now, the sale being over, the speculators, their titles in their pockets have returned home . . . the planter gone to seek his Negroes and his family; the poor squatter is returned to his home . . . not having been able to realize his hope and being obliged to go still once more in search of a spot on which to settle; it may also be that he is hired as manager to the planter who has bought his house and lands."³⁸

Representative Balie Peyton of Tennessee gave an eloquent and pathetic picture: "That poor man who had blazed the trees and planted the potatoes had chosen that spot as the home of his children. He had toiled in hope. He had given it value, and he loved the spot. It was his all. When the public sales were proclaimed, if that poor man attended it, he might bid to the last cent he had in the world, and mortgage the bed he slept on to enable him to do it. He might have his wife and children around him to see him bid; and when he had bid his very last cent, one of these speculators would stand by his side and bid two dollars more, and thus he would see his little home, on which he had toiled for years, where he hoped to rear his children and to find a peaceful grave, pass into the hands of a rich, moneyed company. . . . Such a policy would but teach the republic to alienate her children."³⁹ And Edmund Flagg, a traveller who witnessed a land sale at Edwards-ville, Illinois, declared that "during that public land-sale, indeed, I beheld so much of the selfishness, the petty meanness, the detestable heartlessness, of man's nature, that I turned away disgusted, sick at heart for a race of which I was a. member."⁴⁰ [67]

Finding that the government had little interest in preserving their rights, western settlers took the responsibility into their own hands. Numerous claims clubs or settlers' associations sprang up all along the frontier.⁴¹ Convinced that the "man who obeyed the law was at a disadvantage in comparison with either the speculator or the preemp-tioner," settlers of certain districts banded together to protect their claims at the auction. Over one hundred of these extralegal organizations existed in the Territory of Iowa alone.⁴² These clubs had constitutions which, in fact, resemble the mining law of a later day. They had secretaries who kept records of all the claims of the settlers. Notices and resolutions were always published in the local newspapers which sympathized with their actions.⁴³ Any speculator who bid against a claimant, if not beaten up or harried out of town, was at least outlawed. The settlers pledged their honor "not to borrow of him, nor lend to him, nor sell to him, nor to associate with him in any manner whatsoever." In Mitchell County, Iowa, the settlers were so well organized that at the auction they demanded an extra quarter section of land apiece, and after a hard struggle with the speculators they got their demands.⁴⁴

The claims clubs also dealt with disputes among their own numbers. Frequently settlers would find when the surveys were made that they were on school lands. Knowing that it would be impossible to remain on these lands a settler might try to run some other settler off his claim.⁴⁵ Such an unruly settler was treated no better than a speculator. He was regarded with contempt as no better than a thief or robber.⁴⁶ If the claim jumper persisted in using force in trespassing on another's claim, a vigilance committee was appointed to arrest him and a genuine frontier trial was held in his honor.⁴⁷

The spirit manifest in the organization of these claims clubs penetrated even into the sphere of the territorial governments. In 1838, the [68] territorial legislature of Wisconsin passed a law protecting settlers in their claims against other settlers.⁴⁸ In 1835 an editorial in the Chicago Democrat stated the settlers' point of view. "Public opinion is stronger than law, and we trust that a stranger who comes among us, and especially our own citizens, will not attempt to commit so gross an act of injustice as to interfere with the purchase of the quarter sections on which the settler has made improvements."⁴⁹ The claims club constitutes a good example of the frontier's ability to rule itself without dependence on any absentee governing power.

It would be a mistake to presume that the Jackson administration was ignorant of the dangerous tendencies inherent in the speculative mania. In fact, the entire spirit of such speculation was completely out of keeping with Jackson's determination to reserve the public lands for actual settlers. Indeed, public-spirited men everywhere were discussing means of putting an end to speculation. The congressional advocates of graduation, distribution, and cession each redoubled their efforts to get their own cherished principles adopted, seeing in them a cure for the speculation mania. Senator Foot's proposal to restrict the sales of public lands, which had seemed absurd to many people in 1829, was again brought forward, but western forces fought stubbornly against it. Another panacea suggested was the raising of prices on lands. Certain senators proposed to allow the states to tax the federal lands within their borders. There was considerable support for the recommendation to eliminate the auction.

Among all the plans suggested in Congress, the proposal of Senator Robert J. Walker of Mississippi to limit the sale of lands to actual settlers came nearest to adoption. When Walker, who was Chairman of the Committee on Public Lands, introduced his bill he declared, "In vain shall we have struck down the feudal system with its accompanying relation of lord and vassal, if we create and continue here this worse than feudal vassalage, the system of American landlords, engrossing millions of acres, and regulating the terms of sale and settlement."⁵⁰ He pointed out that in the single year, 1836, an extent of territory as large as the combined states of New England had passed into the hands of speculators. One speculating company, he claimed, was at that very [69] moment advertising for sale a million acres of land. Another company having a capitalization of six million dollars was progressing with its entries. Our territories, he exclaimed, will soon become dominated by speculators who will dictate to the national government. And the East, too, he pointed out, was losing its wealth. "There is thus opened a golden stream from the East to the West," Walker exclaimed, "which, whilst it drains the East of millions of capital, . . . condemns to a period of long sterility a vast portion of the beautiful valley of the West, containing soil inexhaustively fertile, but remaining in the hands of speculators barren and unproductive." He warned the manufacturing interests that a union with those who desired to maintain a surplus in the treasury would be an embrace with death. The coalition of the surplus and tariff interests would no longer continue to exist, or else, he averred, it would destroy the people's will.⁵¹

The essential provisions of the Walker bill were as follows: sales were to be made only to actual settlers and cultivators, and were limited to two sections of land; authority of parents to purchase for their children was recognized; a general preemption was granted to all cultivators; and the States were to be allowed to tax public lands within their borders. The bill underwent very extensive debate. Especially heated were the discussions of the preemption provisions, the principle being challenged on the ground that in the recent sales it was a tool of speculation. Calhoun moved to include in the bill his plan to cede the public lands to the states, but his amendment lost by an overwhelming vote. The Walker bill finally passed the Senate by a vote of 27 to 23 on February 8, 1837. It was introduced in the House on March i, but after several heated arguments it was tabled by a vote of 107 to pi.⁵²

Meanwhile the surplus in the Treasury was increasing at an alarming rate. The national debt had been extinguished at the beginning of 1835, and it was expected that the surplus would amount to about nine million dollars annually for the next three years.⁵³ Clay had been proposing for years the distribution of the proceeds of the sales of public lands, but Jackson had vetoed his bill in 1833. On June 23, 1836, Congress passed Calhoun's bill which provided for distribution of the surplus among the states according to their federal representation in both [70] houses of Congress, the said distribution to be a mere loan to the states and to be placed in certain depositories. Jackson signed the bill reluctantly, explaining that since the representatives of the people had favored it he would not stand in the way.⁵⁴

Of far greater consequence to the immediate situation was the executive order known as the Specie Circular -- probably drafted by Senator Benton -- which was promulgated on July n, 1836. This order required that after August 15 the local land officials should accept only gold and silver in payment for public land, with an exception in favor of actual settlers buying not more than 320 acres.⁵⁵ Jackson in his annual message gave his reasons for the order. The time had come to put an end to the wildcat bank inflation in the West on which speculation was feeding. The order was an expedient to save the new states from nonresident proprietorship, "one of the greatest obstacles to the advancement of a new country and the prosperity of an old one." He concluded by recommending the policy of selling public lands to actual settlers only, for immediate settlement and cultivation.⁵⁶

Almost immediately the country sensed the serious import of the Specie Circular. The very psychology which nourished the speculative bubble had been brought into question by the chief executive of the United States. Public confidence was seriously shaken. Public opinion was keenly divided on the subject. The creditor sections of the country were bitter in their denunciations of the President's interference with the natural operation of economic forces.

This point of view is embodied in the comment of Horace Greeley (later to become the outstanding antagonist of western speculation) who at this time was satisfied with existing conditions and was preaching the doctrine of let well enough alone. He averred that the Specie Circular "may produce a scarcity of money; it may embarrass the Banks, Atlantic and Western; it may even check the impetuous current of speculation generally; but we fear its evils will not fall mainly on those whom it is intended to reach -- that it will bear at least equally on the regular business of the country." He questioned the policy of restricting sales to actual settlers because, he said, the restriction would [71] "amount to nil after the land speculators" got used to it. In general, he observed that "speculation, in its broadest sense," was "not an evil in itself, but the contrary," and relieved "public distress far oftener" than it created it. Had not agriculture been stimulated to an increased production by the prospect and the realization of an increased reward; had not commerce expanded; had labor ever commanded a better remuneration; had not enterprise and industry been encouraged? And still as late as May 6, 1837, after the panic had broken, Greeley insisted that land speculation was not the origin of the financial troubles, but that undoubtedly credit was the source of most of the evil.⁵⁷

Whatever the merits of speculation, the fact remains that the penalty had to be paid. Those commodities which had been the objects of the wildest speculation were the first to be affected. The Specie Circular sent land sales into a precipitous decline. The eastern section of the country could not come to the rescue. Everywhere commodity values began to sag along with land values. Decline ran pell mell into panic. By June 1837 there were at least twenty thousand mechanics and thirty thousand seamstresses in New York City unemployed. Greeley was convinced that their only salvation was to go West and take up land for a living.⁵⁸ A winter of fearful, unexampled severity was in prospect. "Do not wait to share and increase its horrors," Greeley admonished, "Fly -- scatter through the country -- go to the Great West -- anything rather than remain here. . . . Away then, hardy adventurers, to Ohio, Michigan, Illinois, and Wisconsin.... The West is the true destination."⁵⁹ It was too late, however; few workers had money enough to get beyond the corporation limits of New York City. Besides the West was no longer a haven of happiness and prosperity. In the wake of speculation had come desolation, chaos, and ruin. The Panic of 1837 was taking its toll.