The check placed upon land speculation by the issue of the specie circular cramped the operations of Western banks and the Eastern institutions which were closely connected with them coming, moreover, at the period when the distribution of the surplus was to begin, the specie circular was tangled up with a complicated credit system, and immediately brought on the inevitable crash. The first of the four installments for deposit with the States was called January 1, 1837, and as the amount was based on the representation of the several States in Congress it practically meant the transfer of $9,000,000 from one section to another, for a large part of the government deposits at that time were in banks in the less populous States. To bring about these readjustments required a contraction of loans in some sections in order to release the government funds, as Schurz in his life of Clay describes the situation: "Millions upon millions of dollars went on their travels North and South, East and West, being mere freight for the time being,
while the business from which the money was withdrawn gasped for breath in its struggle with a fearfully stringent money market." The first installment was practically all paid; the second installment, called April 1, was coming in when on May 10, 1837, the banks of New York suspended specie payments, and on the next day they were followed by the banks in the other large Northern cities. This suspension temporarily involved the government, since its funds were in the custody of the banks.

The panic which overtook this country was by no means due wholly to mistakes in the country itself. In November,1836, the failure of two banks in Ireland and Manchester was felt on the London Stock Exchange"; the three large business houses known as the three W's, Wilkes, Wilde, and Wiggin, which had closest relations in the granting of credit to America, were in particular affected. Since the imports of the United States at this time largely exceeded the exports the balance was met not by settlements in specie, but by the sale of American securities of one sort or another and by the securing of credits abroad. When the shock was first felt in London English creditors found it necessary to call in their loans. The financial depression brought on an immediate fall in the price of cotton, and the banks in New Orleans which had made large loans on cotton as security had to contract their credits, and these difficulties in turn were reflected in New York."

Another important contributory factor leading to trouble was the failure of the American crops in the years 1835 and 1837, unfortunately continued in 1838. This lessened the purchasing power of the farmers and crippled the merchants. It is the old story : in the confidence of getting in their payments from the country large importers had given time notes to settle for the balance of trade, thus swelling the volume of commercial paper and over-stimulating the growth of credit institutions. High protectionists have also placed emphasis upon the lowering of duties by the tariff of 1833 as the cause of the subsequent disasters.

All of the causes, however, of this diseased state of commerce and business were not clearly seen at the time; people then and since have thought the whole trouble was the insistence of the government in demanding payment for public lands in a currency which would hold its value. At a meeting held in New York March, 1837, to consider the situation, Webster publicly expressed this opinion. It was hoped that the new president, Van Buren, might be induced to rescind the specie circular, and immediately after the delivery of Webster's speech a committee was appointed to go to Washington to labor with the president. The committee had a dismal tale to tell: the value of real estate in New York had in six months depreciated more than $40,000,000 ; in two months there had been more than 250 failures ; there had been a decline of $20,000,000 in the value of the stocks of railroads and canals which centered in New York ; the value of merchandise in warehouses had fallen 30 per cent.; and within a few weeks 20,000 persons had been discharged by their employers. The president was civil; or, as Benton expresses it, treated the gentlemen with exquisite politeness and promised them an early answer. His answer proved to be a refusal to alter the policy, and at this time no human power could possibly have averted the storm. The question was not of selling government land but of realizing at any sacrifice on land security in a time of depression of the deadest kind.

In the midst of this confusion the third installment of the surplus was due July 1,1837 ; the government could do nothing more than to pay to the States the notes received from the banks irrespective of their quality and the fourth installment, due October 1, was never paid.