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