During the depression which followed the panic of 1837, Democrats and Whigs clashed sharply over questions of fiscal and monetary policy. The Democrats favored a reduction of government spending, a restricted Federal government, the separation of the Treasury from the banks, and the payment of public dues in hard money. The Whigs, on the other hand, advocated increased government spending for internal improvements, easy-money policies, reestablishment of the United States Bank, and general increases in tariff rates for the replenishment of the Treasury as well as for the greater protection of manufacturers.
Van Buren's View on the Depression . When the panic broke out, Jackson was no longer President. But his successor and long-time political associate, Martin Van Buren, followed the Jacksonian theories of limited Federal powers and laissez faire. Despite pleas from business and threats from opponents, he refused to ease money conditions or to rescind the specie circular.
The suspension of specie payments by the banks in May, 1837, threw government fiscal operations out of gear. By law, the government could not make deposits in banks which did not redeem their notes in specie, and it could not accept notes which were not so redeemable. Temporarily, collectors kept government funds in the mint or in improvised strong boxes, safes, and vaults, and all payments of public dues were required to be made in coin. Difficulties were encountered in enforcing the latter rule, and collectors were often compelled to accept paper money. Nevertheless, the bulk of Treasury operations were made in hard cash.1
Thus by force of circumstances, Treasury operations became separated from the banks, but this could not continue indefinitely without Congressional authorization and provision for more adequate physical facilities for keeping funds. In addition, revenue declined sharply, and the prospect of a deficit arose. Accordingly, in September, 1837, Van Buren called a session of Congress to deal with the emergency problem.
In his message to the special session, Van Buren identified the panic as part of a world crisis, but he ascribed its domestic aspects more particularly to overaction in business, excessive issues of paper money, foreign loans contracted by states, overextension of short-term credits to Mer-____________________