Indian Removal

Summary

After the War of 1812. the sharply rising prices of agricultural commodities pulled settlers westward to find more arable land and become farmers. Between 1815 and 1819, commodity prices climbed steeply, driving up land prices as well. Farmers took advantage of the extensive river system of the West, shipping wheat and corn down the Ohio River to the Mississippi and then down the Mississippi to the port of New Orleans where it was sold or shipped to distant ports. Due to the capabilities of the Eli Whitney’s newly invented cotton gin, farmers rushed to claim lands in the southwest, hoping to cash in on cotton. Alabama fever gripped the South after the War of 1812, and settlers flowed into Alabama and Mississippi, driving land prices to unprecedented levels. By 1820, Mississippi and Alabama produced half of the nation’s cotton. The United States’ total cotton output tripled between 1816 and 1826. Cotton continued to rise in value as the nation’s primary export, and by 1836, would make up two-thirds of all American exports in terms of value. High prices tempted many former subsistence farmers to enter the market economy.

However, the agriculture and land boom collapsed temporarily in the Panic of 1819. The state banks that had risen up to support speculation and expansion financially had long issued notes guaranteeing redemption for specie or gold. These notes had then been widely circulated as a method of exchange throughout the West. The state banks governed the issuance of these notes very loosely, and thus issued notes far in excess of what they could realistically redeem. In reaction to this situation, the Bank of the United States began to insist that the state banks redeem all notes that had passed into the hands of the Bank of the US, branches of which had been in the practice of redeeming the notes themselves and amassing large numbers of state bank notes which they assumed would be redeemed by the state banks. In order to pay the Bank of the US, the state banks had to demand payment of debts by the farmers of the Midwest. The result was a vast restriction in the amount of circulating money, and a substantial cutback in the amount of credit offered farmers and speculators, dramatically slowing the economy.

The credit squeeze coincided with increased foreign production and thus falling export demand for US crops. Agricultural prices, which had sparked the boom, dropped off sharply, bringing the value of land down. Farmers could not afford to pay their debts, and since speculators could not collect payment for lands they had sold, the value of land plummeted even further. Eventually, through maintained production, innovation, and economic measures by the federal government, prices stabilized and progress continued in settling the West, but at a slower rate than the boom of 1815 to 1819.

Commentary

The paralleling meteoric rises in agricultural prices and land values fed off of each other to define the character of the western economy. Despite the Republicans’ efforts to create a West filled with small subsistence farmers, high land prices and high-interest loans from state banks forced many settlers to focus on cash crops and enter the agricultural market, with which few had previous experience.

Commercial agriculture exposed these inexperienced farmers to many new risks they had not counted on, and had not been warned about by the speculators who had encouraged them to grow cash crops. Cash crops such as wheat and corn were sold far from where they were grown, to strangers of whom the farmers had no knowledge. The farmers had no control over these distant markets and their fickle fluctuations. Additionally, due to the inevitable time gap between the harvesting period and the sale of cash crops, farmers often found themselves borrowing money to sustain their families during these periods of zero-income. These short-term debts were often much larger than expected, and usually cut into long-term profits.

The West was very vulnerable to a crash like the Panic of 1819 because of the overextension of credit and the heightened dependence on agricultural exports to repay loans. Even a slight decrease in foreign demand for agricultural commodities would set off a downward spiral in which farmers could not pay their debts and banks could not issue gold or specie to holders of their notes. The added decline in the value of land capped off the severe restriction of capital in the economy. The biggest losers in the Panic of 1819 were the speculators, who owned huge tracts of land that they had bought at exorbitant prices and now could not sell. Land that had sold for up to $69 an acre dropped in value to only $2 an acre.

The Panic of 1819 had a profound effect on the American psyche. Many grew distrustful of banks, and especially the Bank of the United States, which mtook the blame for beginning the economic collapse. Also, the Panic accentuated the vulnerability of American agriculture and factories to foreign competition, leading to calls for protective economic policies. Though the Republicans in power generally objected to high import duties, higher tariffs were passed in 1824 and 1828. Additionally, falling crop prices highlighted farmers’ dependence on cash crops and unstable agricultural markets. This provoked a search for more efficient methods of transportation to reach distant markets. If the cost of transportation could be cut, farmers could keep a larger portion of the value of their crops as profit, easing the effects of variations in the markets.