Financial History Issue 129 (Spring 2019) | Page 26
OUR FIRST GREAT DEPRESSION
The Bicentennial of the Panic of 1819
Andrew H. Browning
Two hundred years ago, the United
States was struck by an economic and
social catastrophe that has since become
known as the Panic of 1819. It introduced
the American people to the pattern of
boom and bust; it was the first of the series
of financial crashes and economic depres-
sions (called “panics” in the 19th century)
that have since recurred at regular inter-
val—most recently in 2008. Nevertheless,
it was quickly forgotten, as the country
was soon swept up again in what Hezekiah
Niles, publisher of Niles’ Weekly Register,
called “the almost universal ambition to
get forward.” With little understanding of
its causes, the country failed to learn its
lessons and in less than 20 years plunged
into the Panic of 1837.
The bubble of prosperity that led up
to the Panic of 1819 introduced elements
of modern life that we can hardly imag-
ine doing without: consumer credit, real
estate purchases with low down payments,
a bank in every good-sized town, invest-
ment in corporate stock and even the
New York Stock Exchange itself, which
opened in 1817. The ensuing panic gave the
country its first experience of nationwide
waves of bankruptcies, business failures,
foreclosures and unemployment, and it
inaugurated the endless debate over gov-
ernment regulation of business—essen-
tially nonexistent until then.
To speak of the “Panic of 1819”—a term
not used until decades later—is to imply,
misleadingly, a single, discrete event con-
fined to a single year. There was no “Black
Tuesday” in 1819; the economy was still
too decentralized and communication too
slow. The panic arguably began in 1815 as
a regional recession in eastern commercial
cities and mill towns, spreading down the
Ohio River in 1816 and 1817; it evolved
into a banking crisis in 1818 and became
a full-blown national depression with the
collapse of cotton prices in 1819 and a
tide of business failures and bankruptcies.
The sudden end of a western land boom
left millions of dollars in debts, and hard
times lingered in the South and West well
into the mid-1820s.
The panic had its roots years earlier, in
such unlikely places as Haiti, Mexico and
Indonesia. Toussaint L’Ouverture’s suc-
cessful slave rebellion, turning the French
colony of St. Domingue into the Hai-
tian Republic, persuaded Napoleon to sell
France’s remaining American possessions
24 FINANCIAL HISTORY | Spring 2019 | www.MoAF.org
to help fund his expensive war with Brit-
ain, and in 1804 the United States issued
$11.25 million in bonds to pay for the
Louisiana Purchase. They were due to be
redeemed in 15 years, in specie—gold or
silver—but after Napoleon invaded Spain,
revolutions broke out in the Spanish
colonies of Mexico and South America,
and the mines that produced 80% of the
world’s precious metals began shutting
down, making silver currency scarce.
When the Napoleonic wars (and the
War of 1812) finally ended in 1815, thou-
sands of demobilized British soldiers and
sailors flooded the world’s largest indus-
trial workforce, just as the termination of
wartime government contracts lowered
demand for factories’ output. England
faced the prospect of a workers’ revolu-
tion if employment could not be kept
up. The fateful decision was made to
dump goods below cost on the American
market, in an effort to destroy nascent
American manufacturing competition—
to stifle infant industries in the cradle, in
Lord Brougham’s memorable words. It
had a sudden and devastating effect. In
the new mill towns in New England and
the commercial cities along the Atlantic
coast, economic depression began almost