The years between the economic panics of 1819 and 1837 were critical ones in the growth of the American economy. During that period, the nation experienced a rapid acceleration in economic growth. It was a time of great westward expansion, increased mechanization of production, and the emergence of modern domestic and international markets. Industrialization and urbanization also brought about a dramatic shift towards a nonagricultural economy: in 1820, 79% of the American population were involved in agriculture, while in 1850, only 55% remained in that sector (Great Republic, 1:316). At the same time, the expansion of agriculture into the West and the Old Southwest resulted in increased territorial specialization, which raised the productivity of the economy as a whole. The urban East provided important markets that made western agricultural expansion possible, while Western "industries" and settlement stimulated a surge of Eastern capital investments, such as the financing of transportation systems which connected East with West. Thus, it is clear that the economic changes that occurred during these years grew out of deliberate political actions focused on creating larger domestic and international markets and directed toward the continued growth of the economy of the early American republic.

I. An Agricultural Economy
According to the 1840 census of Indiana, 88% of the state's labor force were employed in agriculture. At the same time, roughly 92% of Hamilton County's households had at least one adult working in agriculture. The remaining segments of the population were involved in manufacturing, commerce, and professions. In most cases, however, skills and trades may have been secondary to the primary agricultural occupation, thereby providing essential services to the agricultural production sector of the economy.

II. Factors of Production
A. Land Land was the basic factor of agricultural production and economic existence in Indiana. The original settlers of Hamilton County bought their land from the federal government at public auctions, paying $1.25 per acre. Nationally, the peak year for land sales was 1836. Likewise, in Hamilton County, the period 1832 to 1836 was very busy for land sales - by the end of 1837, virtually all government lands had been sold in the county. The average amount of land held by a Hamilton County resident in 1836 was 80 acres (not all cleared). By the 1830s, some farms were being sold a second or third time; however, most people made only one or two purchases and held on to their land, rather than selling it for immediate gain. Naturally, improvements on the land (clearing, fences, buildings, etc.) increased in the value of an acre to $3 to $5. Proximity to towns and transportation routes also increased land prices to upwards of $10 per acre.

B. Labor The basic unit of labor was the family. in which every member had distinct roles to contribute to the sustenance of that unit. There was some degree of specialization of labor: women oversaw the domestic chores; men handled the farm work and the skilled crafts; children and elderly performed tasks which matched their strength and abilities. Any distinct division of labor vanished at crucial times of the year, such as at planting or harvest, when all members participated in the numerous agricultural chores. The community was another source of labor. Neighbors often assisted in house or barn raisings, haying or harvesting, which also provided the important social occasions for the settlement. Finally, hired labor and apprentices were essential parts of the young economy. Many farmers employed laborers on a seasonal or by-the-job basis; few were hired year round. Apprenticeships, an important means by which a skilled craft was preserved for future generations, became less important by mid-century as industrialization and the need for unskilled factory labor supplanted the more specialized craftsman.

C. Capital Capital goods, such as buildings, livestock, and tools, were crucial for the survival of Indiana's farmers and settlers. Fortunately, the vast timbered lands, which farmers cleared in preparation for planting, provided cheap materials for building homes, shelters and fences. Tools and other implements may have been brought from one's previous residence, manufactured by a local craftsman, or purchased in local stores which were beginning to stock mass-produced items.

III. Subsistence
Farming was commercial from the very beginning. Self-subsistence was only a fleeting occurrence of the earliest years of settlement. The major purpose for opening the western regions of America was the ready production of cash crops for market; consequently, Indiana farmers were capitalist producers from their first ax blow and the first bite of an ox-drawn plow. Within the agricultural community, work was geared toward meeting one's needs for food, heat, and shelter. However, items such as corn, pork, and their by-products became important market goods for Indiana's economy. Life in central Indiana also provided other marketable products - women may have produced some items for local sale or trade, artisans crafted assorted; and farmers supplied farm produce to the village store. However, by 1836, central Indiana was definitely within reach of most national markets, and residents could probably have secured most anything that was being sold in the East from one of the stores in Noblesville or most certainly Indianapolis: metal needs were met by merchants or local foundries; cloth produced in Eastern and English mills was available from commercial sources; local mills processed grain, sawed wood, and finished woolens; and a wide variety of "consumer goods" and wares were being shipped from distant markets. Thus, absolute isolation and complete dependence upon one's family had most certainly disappeared by 1836.

IV. Rural Villages
Rural villages were of two basic types: spontaneous settlements that clustered around a tavern, craftsman, or storekeeper; and speculator towns, platted and laid out in advance for purpose of town making and lot selling. In either case, the village served as a "trade and service" center for the agricultural population of the surrounding region, often providing many of the following services: a store, blacksmith, post office, mill, carpenter, or wayside tavern - something for which most residents had a need and which could generate employment for others. Villages essentially lived off the wealth and activities of the rural sectors; they provided far too little to sustain the division of labor common to much larger urban centers. The village was important as the primary contact point for the rural population and the complex, integrated network of commercial channels, communications, and transportation. By this means, rural residents and their villages willingly participated in the transformation of rural life into an interdependent component of larger regional and national systems.

The storekeeper usually played a central role in the rural village, serving as postmaster, subscription agent for periodicals and newspapers, financial agent, and communication link with the outside world. Most importantly, the storekeeper provided a local market for farmers who were unwilling or unable to transport their goods to market; in many instances, the storekeeper handled shipments of surpluses to Ohio River towns or other nearby commercial centers. Just as important, the storekeeper was the "credit center" for the village and the surrounding region.

V. Barter
Because of the absence of sufficient cash to transact business, it was essential for merchants to establish some form of reliable economic exchange. Consequently, many transactions were conducted on a "barter" basis. Rather than a straight one-for-one exchange, customers brought goods to the store which were credited to their accounts, usually by quantity rather than by value; any store purchases were recorded as debits. Accounts were balanced by fixing a price value to the bartered goods on the basis of their resale value (the price paid by other customers). In many cases, storekeepers advertised lists of goods that would be accepted at their stores for barter; this was done to ensure the prospect for selling the bartered goods and farm produce to the local market and to prevent the accumulation of unmarketable merchandise.

VI. Credit
Because of the seasonal nature of agriculture, market produce was only available at certain times of the year, primarily the fall, while goods and services were required throughout the year. Thus, in order to maintain any business, craftsmen and storekeepers had to extend "book credit" to their customers. This could be done in "short credits" for sixty to ninety days, or "long credits" for periods of six months or longer, payable in trade or cash. When a debt was owed between two people, payment was sometimes offered in the form of "store credit." By this method, the debtor would grant to the creditor a credit at the store worth the value of the standing debt. Bills could be paid and credit could be extended in forms of butter, flour, grain, vegetables, and labor services. Debited amounts were fairly common as individuals deferred payments until harvest time.

Since a merchant sold so much on credit, he was often forced to buy on credit. In order to find goods to sell in his own store, the merchant visited wholesale houses and jobbers in Cincinnati, Philadelphia, and New York and acquired a line of credit with them by presenting letters of reference. His bills were paid by selling the farm produce, obtaining a bankdraft payable to the wholesale firm, and then carrying the draft to his creditors for payment. In some cases, merchants, concerned with their overextension of credit, notified their customers through newspaper advertisements of an impending "buying trip" to a major city and requested that all debtors pay all or portions of their bills to facilitate the purchase of goods at market. William Conner did this in the Indiana Democrat of 11 May 1833: "it cannot be expected that we can continue to bring on goods, unless we make some collections...We also wish those who have accounts unsettled, of one year's standing, who cannot pay them now, to call and give their note immediately..."

VII. Money
The monetary system of the early 19th century was somewhat confusing. It involved a variety of currencies whose values differed from state to state and whose soundness depended upon numerous factors, including the distance of the place of redemption from the place of issuance.

There were three types of money used in the 1830s:

Notes were paper money issued by banks, both chartered and private. Public and private agencies, such as insurance companies, railroads, and large mercantile establishments, also issued printed notes. These notes simply promised to pay the bearer the face value of that note in specie (coin). With so many issuers of paper money, counterfeiting and inadequate specie backing were serious problems, which made many Westerners wary of bankers and paper money and which helped explain Jackson's support of "hard money." One bank that carried a good reputation for issuing "land office money" (notes accepted by the federal government as payment for land) was the Second State Bank of Indiana.

Bank Deposits were used primarily in urban centers. Rather than give coin to borrowers to pay debts, the banks opened deposits for the borrowers who drew checks on their accounts; those checks would then be redeemed at a bank for payment.

American Coins in circulation during the 1830s were minted in gold, silver, and copper, the most common one being the silver half dollar. Gold coins were minted in ten, five, and two and one-half dollar denominations; these coins gradually disappeared from circulation as gold became overvalued by 1834. Foreign coins were also circulating; in fact, the Congress passed the Coinage Act of 1834 which made the coins of the Spanish American colonies legal tender in the United States. Spanish silver dollars were often cut into eight wedged-shaped pieces, worth 12 1/2 cents each (bits). Both types of coins, because of their scarcity were regularly cut into pieces to make change and shaved wherever it was advantageous.

The profusion of notes, confusion of foreign coins, and scarcity of American coins caused problems for the government and businesses alike, primarily deciding which notes and coins were acceptable and for how much. The value of notes was almost an arbitrary determination based upon the perceived soundness of the issuing institution and location of that institution.

VIII. Inadequate Transportation - An Economic Dilemma
A central problem hindering the economic growth of central Indiana in the 1830s was the absence of adequate transportation. Until transportation systems were developed, there were no efficient or reliable means of carrying produce to market or goods to the interior. Faced with the poor and oftentimes impassable roads, many Indiana farmers chose to transport their produce by river. Since the rivers flowed south, New Orleans and other Mississippi River towns appeared to be the only logical markets for Indiana's agricultural surplus. Prohibitive transportation costs for shipping to the East eliminated the alternate markets. Furthermore, the Wabash and White Rivers were navigable by flatboat only during high water (spring and fall). During these periods, the "Wabash glut" often occurred, when large amounts of produce reached market during a short period of time; as supply exceeded demand, prices paid to Indiana farmers were extremely low.

IX. 1836 - A Boom Year or The Year of Impending Crises?
There were three main factors which generated the economic boom of 1835-36:

As a result of his war against the Bank of the United States, President Andrew Jackson ordered the redepositing of federal funds into state and local, or "pet" banks, which initiated an upward-moving credit spiral. With the sudden availability of increased reserves, many state banks issued notes and extended credit at a higher rate; private banks also stepped up their activities.

A dramatic increase in the world's demand for cotton, the major American export, forced the price up to 15.5 cents per pound (yearly average) in 1835 and 15.2 cents per pound (yearly average) in 1836. This was the peak of a steady price rise which had begun much earlier. By 1840, the South was growing 60% of the world's cotton. (Great Republic, p.321). Anticipating increased returns and using easily available credit, speculators jumped into the land market, and land sales in the slave-holding, cotton-growing Southwest and the food-growing Northwest boomed to their highest levels of the antebellum period. In 1834, approximately 4.5 million acres of land were sold by the federal government. Land sales for 1835 exceeded 12.5 million acres, while 1836 sales surpassed 20 million acres.

National improvements in transportation contributed to the unification of the young republic. Projects such as the Erie Canal, Ohio's canal system, and the emergence of railroads in the East had significant effects on the economy and contributed materially to the "boom." Even in Indiana, the "internal improvements" proposals of 1836 had a speculative impact on the financial market.

Because of this encouraging economic news, many Indiana residents were more willing to go into debt. Expectations for high future returns encouraged indebtedness for land speculation, town building, capital investments, and store purchases for present consumption. Consequently, there was great economic activity and much excitement about the future.

However, in the midst of the boom, some observers foresaw economic troubles. Calvin Fletcher, lawyer, farmer, and director of the State Bank, wrote in his diary on 22 April 1836 about a conversation with a "Mr. Peck" of Madison: "We agree that there is a great danger of a crash engaging speculators and holders of real estate and that it will take place in 18 months that all prudent men will prepare for it in the meantime..." (Fletcher's Diary, 1:333).

On July 11, 1836, President Jackson issued the "Specie Circular," which ordered all land offices to accept only specie (hard money) for land after December 15, 1836. Although Jackson intended this move to discourage land speculation, its final effect was to burst the credit bubble. Land sales, which had reached their peak in the second quarter of 1836, began a steady decline during the latter half of the year.

Shortly after the engagement of the presidential directive, Calvin Fletcher wrote to John Tipton and commented on the immediate effect of the "Specie Circular" on Indiana's economy: "The full operation of the Circular has commenced - our canal hands here refuse to take any of our state paper except such as is on our branch that they can go and draw the specie - our pecuniary prospects look gloomy - I hope you will see clearly your duty to go in for restoring the old order of things in relation to the currency - Congress should not delay one day to do away the circular and the great parade the treasury makes in constant transfers of money from Bank to the other and from state to the other produces great mischief. ...you mentioned to me some time last summer that things never would be right again until another national Bank, another monster came into existence. I now believe it - and I trust you will hasten the event so far as it is in your power -

(Tipton Papers, 3:330-331)

Nearly five months later, on May 10, 1837, New York City banks stopped payment of specie, a move that was followed by every major bank in the country over the course of the following nineteen days. Thus, the Panic of 1837 began, initiating a general downward trend into severe economic depression which lasted until 1843.

Suggested Readings on Jacksonian Economics
Atherton, Lewis E.; The Pioneer Merchant in Mid America, University of Missouri Studies, 1939.

Berry, Thomas S.; Western Prices before 1861, Harvard University Press, 1943.

Buley, R. Carlyle; The Old Northwest, Indiana University Press, 1951, 1984.

Catterall, R.C.; The Second Bank of the United States, University of Chicago Press, 1968.

Esarey, Logan; The State Bank in Indiana 1814-1873, Indiana University Studies, 1910-1913.

Hammond, Bray; Banks and Politics in America from the Revolution to the Civil War, Princeton University Press, 1957.

Madison, James H.; "Businessmen and the Business Community in Indianapolis 1820-1860", PhD. diss., Indiana University, 1972.

North, Douglas; Economic Growth of the United States 1790-1860, W.W. Norton Co., 1966.

Pessen, Edward; Jacksonian America, Dorsey Press, 1978.

Seller, Charles, The Market Revolution: Jacksonian America, 1815-1846, Oxford U. Press, 1991.

Schob, David E.; Hired Hands and Ploughboys: Farm Labor in the Midwest 1815-1860, University of Illinois Press, 1975.

Sharp, James R.; The Jacksonians Versus the Bank, Columbia University Press, 1970.

Taylor, George R.; The Transportation Revolution 1815-1860, Harper Torchbook, 1951,1968.

Temin, Peter; The Jacksonian Economy, W.W. Norton, 1969.

(From the Conner Prairie Interpreter Resource Manual)