The Panic of 1837
There has already been a depression in the United States of America in 1837, which is far less famous than the Great Depression for two reasons. The first is that it was a long time ago, so people don’t put the long-past crisis in connection with the current Financial Crisis. The second, however, is a much more interesting reason with regards to this work. The depression of 1837 was a far shorter lasting Financial Crisis than the Great Depression, which might have to do with the way the government dealt with the situation.
The problem back then was that the banks abandoned the gold standard, which means that the paper money that was given out by the banks was not backed up by an equivalent amount of gold or silver anymore. A lot of depositors wanted to withdraw their capital from the banks at the same time, and these were not able to meet the demands and thus the banks went bankrupt. Once this happened to the first bank and people got to know about it, a real panic broke out. Everyone suddenly wanted to withdraw their deposits from the banks because they feared there wouldn’t be anything left when it was needed. Although the amount of money available might never have been a problem for most of the banks, it caused a severe crisis due to the panic-driven run on the banks due to a lack of trust to them.
President Martin van Buren, in contrary to what governments do right now or did in the Great Depression to get on top of the current crises, didn’t intervene in the economy and interestingly it recovered pretty soon; first improvements could be noticed at the end of 1838. Instead of injecting money into the economy to “save” it van Buren even immediately cut government spending by 21 percent. The fact there was no Goverment Intervention helped the economy to recover on its own.