h crisis of 1825, the entire debt of the general government
was paid off and a tremendous speculation occurred in public lands, which
were expected to advance rapidly in value as the result of immigration and
the growth of the country. The sales of public lands in 1836, on the eve of
the crisis, reached 20,074,870 acres and brought receipts to the treasury
of $25,167,833. How essentially speculative was the mass of these sales is
indicated by the fact that such receipts declined in 1842 to only
$1,417,972. President Jackson pricked the bubble of speculation by the
"Specie circular" of July 11, 1836, requiring payments for public lands to
be made only in specie or notes of specie value. Practically every bank in
the Union stopped payment, and banking capital fell from $358,442,692 in
1840 to $196,894,309 in 1846. As usual in periods of business collapse the
shrinkage of capital did not follow at once the outbreak of the panic, but
was the result of gradual liquidation. Specie payments were resumed in
1838, but there was another crash in 1842, after the United States Bank
finally suspended.

In New York, which was becoming the chief commercial state of the Union,
the banks of New York City were generally sound, but several different
systems were tried of securing the circulating notes. The "safety-fund
system," inaugurated in 1829, provided for a contribution by each bank
towards a fund to meet the deficit of any contributing bank which might
fail with assets insufficient to meet its liabilities. It was the intention
of the act to protect by this fund only the bank-notes, but it was treated
as a fund for the payment of all the liabilities of a failed bank and in
consequence the fund was exhausted by important failures which occurred in
the panics of 1837 and 1857. Before 1843 the issue of notes was not
controlled by the state, so that in several cases there were illegal
over-issues.

What was called the "free-banking system" was inaugurated in New York by
the act of 1838. This system permitted any body of persons, complying with
the requirements of the law, to form a bank and issue circulation secured
by the deposit of various classes of public bonds. This system was in
operation at the outbreak of the Civil War, was imitated in several other
states, and became in a measure the model of the national banking system.
The state banks of Indiana and Ohio were among the most successful of the
state banks, being modelled somewh