Panic of 1857
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The Panic of 1857 was a sudden downturn in the economy of the United States that occurred in 1857. A general recession first emerged late in 1856, but the successive failure of banks and businesses that characterized the panic began in mid-1857. As the overall economic downturn was brief, and the recovery strong, lasting impact was limited. However, more than 5,000 American businesses failed within a year, and unemployment was accompanied by protest meetings in urban areas. Eventually the panic and depression spread to Europe, South America and the Far East. No recovery was evident in the United States for a year and a half, and the full impact did not dissipate until the American Civil War.
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[edit] Causes
The recession ended a period of prosperity and speculation that had followed the Mexican-American War and the discovery of gold in California in the late 1840s. Gold pouring into the American economy played its part by helping inflate the currency. Changes in worldwide economic trade, caused by the Crimean War between Britain and Russia, had pushed American firms into a precarious worldwide market. (McPherson, p. 189) The immediate event that touched off the panic was the failure on August 24 of the New York City branch of the Ohio Life Insurance and Trust Co., a major financial force that collapsed following widespread embezzlement. In the wake of this event, a series of other setbacks shook the public's confidence, including:
- The decision of British investors to remove funds from U.S. banks, which raised questions about overall U.S. economic soundness
- The fall of grain prices, which spread economic misery into rural areas, because of the end of the Crimean War and Russian re-entry into global markets
- The collapse of land speculation programs that depended on new rail routes, ruining thousands of investors
These triggers lowered the value of stocks and bonds held by American banks, further reducing their investment assets.
Investor confidence was further shaken in mid-September when 30,000 pounds (13,500 kg) of gold were lost at sea in a shipment from the San Francisco Mint to eastern banks. The gold and more than 400 lives were lost when the SS Central America sank during the North Carolina Hurricane of 1857. Public confidence in the government's ability to back its paper currency with specie was shaken as well.
Recent research by Charles Calomiris and Larry Schweikart suggests that the Supreme Court's ruling in the 1857 Dred Scott case may have helped bring about the Panic. The Court's decision threatened to open up all western territories to slavery, prompting the bonds of east-west running railroads to plummet in value, which in turn helped motivate a run on the major New York banks.
[edit] Remedies
At the suggestion of Howell Cobb, Secretary of the Treasury, President James Buchanan proposed to Congress that the Treasury be authorized to sell revenue bonds for the first time since the Mexican-American War.
In October, a bank holiday was declared in New England and New York in a vain effort to avert runs on those institutions.
The Tariff Act of 1857 reduced the average tariff rate to about 20%. The reduction was written by Southerners in Congress and supported by most economic interests nationwide with the exception of sheep farmers and some iron companies in Pennsyslvania. The South had no tariff grievances as the country moved toward civil war.[1]
The South was much less hard-hit than other regions because of the stability of the cotton market.
[edit] See also
[edit] Further reading
- Charles Calomiris and Larry Schweikart, "The Panic of 1857: Origins, Transmission, Containment," Journal of Economic History, December 1990, 807-834.
- Huston, James L. The Panic of 1857 and The Coming of the Civil War (1987).
- McPherson, James M. Battle Cry of Freedom: The Civil War Era. Oxford University Press, US, 2003. ISBN 0195038630
- Sobel, Robert. Machines and Morality: The 1850s (1973), chapter 9, The Panic of 57.
- Stampp, Kenneth. America in 1857: A Nation on the Brink (1990) (ISBN 0-19-503902-5)
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