Economic conditions boomed in Missouri and the country in 1835. The cotton market and prices increased throughout the South, resulting in increased land purchases and growing demand for enslaved workers. Across the Lead Belt of southeast Missouri, rising lead production and increased demand for furs fueled the boom conditions.
For example, conditions in Madison County reflected these trends, with building booming and unprecedented land sales. Madison County also benefited from the Santa Fe trade, which was particularly valuable because Mexican traders paid in silver. One result of the development of the Santa Fe trade was the heavy demand for mules. Madison County and other nearby areas were especially suitable for breeding and raising mules used for moving goods to Santa Fe.
Nationwide, the flush times increased the temptation for producers to buy more land, and financial institutions responded by increasing the amount of credit and paper money in circulation. In those days, gold and other specie backed up paper money, and soon the amount of circulating currency far exceeded the value of gold reserves. Another economic policy promoted an increase in currency—high tariffs implemented to protect American industries. States also issued bonds and loans to finance internal improvements in the early to mid-1830s. For the first time, the country paid off the national debt, which created budget surpluses and fueled inflation. President Jackson, personally mistrusting banks, vetoed the recharter of the Second Bank of the U.S., so the treasury moved public money to state and local banks. The result was additional speculative lending practices. Overall, these conditions created the perfect storm to fuel a financial panic, the term applied to economic downturns in the 1800s.
Realizing the potential for problems, President Jackson issued an executive order to limit purchase of lands in the public domain to 320 acres. The intent was to curb inflation and land speculation, but a result was a further drop in monetary reserves. Foreign investors reacted with alarm and pulled back.
The bottom dropped out when a poor cotton harvest coupled with falling cotton prices occurred in 1837. Unemployment skyrocketed, banks failed, and wages and prices deflated precipitously. The South experienced the most severe effects.
Missouri was not as hard pressed as the eastern part of the country. The “hard” money from the Santa Fe trade supplied cash to do trading but Madison County and other western territories depended upon the general prosperity of the nation. Excess production of lead, furs, and farm products ceased for the lack of a market.
Paper money issued in small denominations by banks in the east, called “shinplasters,” lacked backing by sufficient hard money to insure their redemption. The bank of Missouri, chartered in 1837, did not issue this paper money until 1840 or 41, but gold backed them up and they were redeemable at par. The flooding of the country with this paper money of so many different kinds resulted in the necessity of having a central bureau to place real value on each type of currency. A fifty cent “shinplaster” might be worth forty cents or thirty cents depending on which bank issued it and the probability of redemption in value approaching its par value.
Even though eastern Missouri was buffered from the most severe effects, and this delayed tough times,1841-42 and 43 were the hardest years in Madison County. Thereafter, the most severe effects of the panic played out in much of the country and recovery began. By 1845 prosperity began to return.
